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Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing

  • Pashchenko, Svetlana
  • Porapakkarm, Ponpoje

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49730.

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Date of creation: 13 Sep 2013
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Handle: RePEc:pra:mprapa:49730
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  10. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2010. "Quantitative Analysis of Health Insurance Reform: Separating Community Rating from Income Redistribution," MPRA Paper 26158, University Library of Munich, Germany.
  11. Mikhail Golosov & Aleh Tsyvinski, 2006. "Designing Optimal Disability Insurance: A Case for Asset Testing," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 257-279, April.
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  18. Dhaval M. Dave & Sandra L. Decker & Robert Kaestner & Kosali Ilayperuma Simon, 2013. "The Effect of Medicaid Expansions in the Late 1980s and Early 1990s on the Labor Supply of Pregnant Women," NBER Working Papers 19161, National Bureau of Economic Research, Inc.
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