Public Health Insurance and SSI Program Participation Among the Aged

Previous researchers have noted that the ‘categorical’ Medicaid eligibility accompanying the welfare programs Aid to Families with Dependent Children (AFDC) and Supplemental Security Income (SSI) often far exceeds the value of these programs’ cash benefits. It may be the case that the accompanying health insurance, not the cash benefit, is often the decisive factor in welfare participation. If so, welfare participation should decrease when cash and health insurance benefits are unbundled. We present a simple model of program participation with heterogeneous valuation of health insurance and transaction costs of participation. We evaluate the following four implications of the model: 1) SSI participation declines with the expansion of alternative routes to Medicaid (i.e., noncategorical Medicaid); 2) the availability of noncategorical Medicaid increases Medicaid participation among SSI nonparticipating eligibles; 3) the average SSI benefit collected by welfare recipients is higher when noncategorical Medicaid is available; and 4) the average SSI benefit rejected by nonparticipating SSI eligibles is higher when noncategorical Medicaid is available. Overall, the findings on the model’s testable implications are mixed. The estimates imply strikingly large effects of the presence of alternative routes to Medicaid on both SSI and Medicaid participation, but the results for the hypotheses about SSI benefit amounts are sensitive to controls for recipient characteristics.