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Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing

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  • Pashchenko, Svetlana
  • Porapakkarm, Ponpoje

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.

Suggested Citation

  • Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2013. "Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing," MPRA Paper 49730, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:49730
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. #HEJC papers for October 2013
      by academichealtheconomists in The Academic Health Economists' Blog on 2013-10-01 04:30:26

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    Cited by:

    1. Mazumder, Bhashkar & Miller, Sarah, 2014. "The Effects of the Massachusetts Health Reform on Financial Distress," Working Paper Series WP-2014-1, Federal Reserve Bank of Chicago.
    2. Eric French & John Bailey Jones, 2017. "Health, Health Insurance, and Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 383-409, September.
    3. Svetlana Pashchenko & Ponpoje (Poe) Porapakkarm & Mariacristina De Nardi, 2017. "The Lifetime Costs of Bad Health," 2017 Meeting Papers 533, Society for Economic Dynamics.
    4. Zhao, Kai, 2017. "Social insurance, private health insurance and individual welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 78(C), pages 102-117.
    5. Wellschmied, Felix, 2015. "The Welfare Effects of Asset Means-Testing Income Support," IZA Discussion Papers 8838, Institute for the Study of Labor (IZA).
    6. Capatina, Elena, 2015. "Life-cycle effects of health risk," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 67-88.
    7. repec:eee:hapoch:v1_457 is not listed on IDEAS

    More about this item

    Keywords

    health insurance; Medicaid; labor supply; asset testing; general equilibrium; life-cycle models;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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