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. l 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.

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Journal of Human Resources, forthcoming.
Working Papers