Stemming the Tide? The Effect of Expanding Medicaid Eligibility on Health Insurance Coverage

Federal legislation passed in the late 1980s greatly expanded the potential coverage of the Medicaid program. Whereas in 1985 Medicaid was essentially limited to mothers and children on AFDC, by the early 1990s eligibility was expanded to include all children born after 1983 in poor families, regardless of family structure or income sources. In this paper I evaluate the effects of these expansions on Medicaid coverage and overall health insurance coverage of low- income children. Growth in Medicaid enrollment between 1988 and 1993 is decomposed into three underlying sources: changes in the eligibility rules of the program; changes in the eligibility characteristics of the population; and changes in takeup among the eligible. I find that about 68 percent of the 6.7 percentage point rise in coverage rates is attributable to the expanded eligibility rules. While the expansion of Medicaid eligibility may have increased Medicaid enrollment, an important question is whether the increase represented a net gain in health insurance coverage, or a substitution from private to publicly-provided coverage. I employ between-state variation in the impact of the federally-mandated expansions to measure the potential "crowding out" of private health insurance by public insurance. I find little evidence of crowding out: instead, the Medicaid expansions seem to have maintained overall health insurance coverage rates against a backdrop of declining private coverage.