Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing

Svetlana Pashchenko and Ponpoje Porapakkarm

MPRA Paper from University Library of Munich, Germany

Abstract: Having low income is one of the requirements for Medicaid eligibility. Given that earning ability is unobservable, once an individual with high labor income stops working it is impossible to distinguish him from those whose potential labor income is low. This can affect the ability of Medicaid to target the most disadvantaged people given that a large fraction of its beneficiaries do not work. In this paper we ask two questions: 1) Does Medicaid significantly distort work incentives? 2) Can the insurance-incentives trade-off of Medicaid be improved without changing the size of the redistribution in the economy? Our tool is a general equilibrium model with heterogeneous agents calibrated using the Medical Expenditure Panel Survey Dataset to match the life-cycle patterns of employment and insurance take-up behavior as well as the key aggregate statistics. We find that around 20% of Medicaid enrollees do not work in order to be eligible. These distortions are costly for the economy: if Medicaid eligibility could be linked to (unobservable) productivity the resulting ex-ante welfare gains are equivalent to 1.5% of the annual consumption. We show that asset testing can achieve a similar outcome but only if asset limits are allowed to be different for workers and non-workers.

Keywords: health insurance; Medicaid; labor supply; asset testing; general equilibrium; life-cycle models (search for similar items in EconPapers)
JEL-codes: D52 D91 E21 H53 I13 I18 (search for similar items in EconPapers)
Date: 2013-09-13
New Economics Papers: this item is included in nep-dge, nep-hea, nep-ias and nep-lab
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: WORK INCENTIVES OF MEDICAID BENEFICIARIES AND THE ROLE OF ASSET TESTING (2017)
Working Paper: Work Incentives of Medicaid Beneficiaries and the Role of Asset Testing (2016)
Working Paper: Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49730

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