To investigate the effects of local labor market conditions and the availability of employer‐sponsored health insurance on exits from the Medicaid program.
Data for this project come from a unique administrative database containing a 2 percent sample of all cases on California's Medicaid program in 1987 and a 2 percent sample of all new cases starting each year between 1987 and 1995.
The results are estimated using a discrete duration model where the monthly exit probability is a function of demographic characteristics, local labor market variables, the probability of having employer‐sponsored insurance, and fixed year and county effects.
Improvements in labor market opportunities (i.e., employment growth, wage growth, and increases in the availability of employer‐sponsored health insurance) promote exits off the Medicaid program. A 2.5 percentage point increase in the availability of employer‐sponsored insurance leads to a 6 percent increase in the probability that a completed spell lasts no more than 2 years. It would take a 2 percentage point decrease in unemployment rates or a 10 percent increase in average quarterly earnings to yield an equivalent increase in the likelihood of exiting Medicaid within 2 years. These effects are robust to the inclusion of county‐level fixed effects and time effects.
Medicaid expenditures and caseloads are sensitive to local economic fluctuations and secular trends in the availability of health insurance. Continued decreases in employer‐based health insurance coverage will greatly increase the demand for public insurance coverage and the financial pressures on state governments.
