Medicaid Expansions to Low-Income Adults
Introduction
The Affordable Care Act, enacted in 2010, made it possible for childless adults with marginal adjusted gross income under 138 percent of the federal poverty line to be eligible for Medicaid. This expansion increased the percent of childless adults who were eligible from 1-2 percent to 13-14 percent. By 2012, 26 states had implemented this available expansion in eligibility, with another five states following in 2016.
Shupe (2023) uses the state-level expansions as quasi-exogenous variation from the perspective of the household to estimate the MVPF for the ACA Medicaid expansion. The paper uses a pooled cross-section of the Household Component of the Medical Expenditures Panel Survey (MEPS) and estimates an Intention-to-Treat effect.
MVPF = 0.7
Net Cost
The paper calculates two pieces to estimate net cost: (1) the mechanical costs and (2) the fiscal externality that results from improved financial health.
(1) The paper calculates the mechanical costs of Medicaid as the product of CPI-adjusted pre-reform expenditures on Medicaid ($5,940.50) multiplied by the marginal increase in Medicaid eligibility (0.163): $5,940.50 x 0.163 = $968.30. The paper does not include a fiscal externality in the net cost. The paper also includes the mechanical costs for the subset of households with at least one pre-existing condition: $1,431.73.
(2) The paper notes that there are two potential fiscal externalities at play: a negative fiscal externality that is the result of dis-employment effects and/or moral hazard-induced increases in health care utilization, and a positive fiscal externality from improved health and/or improved financial health.
The paper notes that previous literature has not established the existence of dis-employment effects and therefore omits those from the calculation of the fiscal externality. The paper notes that while previous work has not found a health effect, Medicaid expansions have been linked to reductions in, e.g., unpaid bills and improved access to credit. The paper describes this effect as the change in risk premium. Assuming a risk aversion coefficient of 3, the paper estimates the mean change in risk premium to be $33.42 ($202.25 for households with at least one pre-existing condition).
The net cost then is $968.30 – $33.42 = $934.88 ($1,229.48 for households with at least one pre-existing condition).
Willingness to Pay
The paper sums three pieces to calculate the willingness to pay for the Medicaid expansion: (1) the change in insurance premium payments, (2) savings by private insurance companies, and (3) the change in the certainty equivalence of non-health consumption between a state of the world with Medicaid and a state of the world without it for beneficiaries.
(1) The paper estimates that, on average, Medicaid-eligible households paid $113.89 less in insurance premium payments ($178.17 for households with at least one pre-existing condition).
(2) The paper estimates that private insurance companies saved $344.55 annually per Medicaid-eligible household ($586.15 for households with at least one pre-existing condition).
(3) The paper defines the change in the certainty equivalence of consumption with and without Medicaid eligibility as the sum of (a) the change in the risk protection component (as discussed in the calculation of the net cost) and (b) the change in out-of-pocket expenditures. The paper uses unconditional quantile regressions to estimate distributions of the “with” and “without” states of both of these pieces to estimate the changes. These distributions suggest a mean change the certainty equivalence of $192.85 ($455.30 for households with at least one pre-existing condition) assuming a risk coefficient of 3.
The total willingness to pay is then $113.89 + $344.55 + $192.85 = $651.29 ($1,201.62 for households with at least one pre-existing condition).
MVPF Summary
Dividing the willingness to pay by the net cost yields an estimated MVPF of the ACA Medicaid expansion of 0.7 (0.99 for households with at least one pre-existing condition).
The paper calculates other MVPFs looking at other points in the estimated distributions of the change in the certainty equivalence and the change in risk protection, yielding a range of 0.6 (using the estimated 25th percentile values) to 1.48 (using the estimated 90th percentile values). The equivalent range for households with at least one pre-existing condition with 0.75 to 5.31.
References
Cortnie Shupe (2023). “Public Health Insurance and Medical Spending: The Incidence of the ACA Medicaid Expansion.” Journal of Policy Analysis and Management, Vol. 42, No. 1, 137-165. DOI: https://doi.org/10.1002/pam.22435
Policy Features
- Category
- Social Insurance
- Sub-Category
- Health Adult
- Beneficiary Type(s)
- Adults
- Country of Implementation
- United States
- Empirical Method
- Difference in Differences
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- onlinelibrary.wiley.com/doi/epdf/10.1002/pam.22435