Reducing Poverty: How Medicaid Does More Than Just Improve Access to Healthcare in Cities

Medicaid is the nation’s largest source of health coverage, providing health insurance for nearly 54 million Americans. While the program is framed as one designed to improve access to healthcare and even improve health, its impact on poverty reduction has not been as well researched. A recent study, however, reveals the significant poverty-reducing effects of Medicaid and finds that in a comparison against other government programs, Medicaid is the third largest anti-poverty program in the United States, behind only the Earned Income Tax Credit and the Supplemental Nutrition Assistance Program. These poverty-reducing effects have broad implications for families and individuals in metropolitan areas, where Census figures show that people had a higher likelihood of struggling financially; here in the Chicago metro area, 14.5 percent of residents were considered in poverty in 2012.

In the article “The Poverty-Reducing Effect of Medicaid” economists Benjamin Sommers and Donald Oellerich use a counterfactual model to assess the impact of eliminating Medicaid on poverty. The data show that Medicaid reduces medical out-of-pocket spending from $871 to $376 on average per beneficiary. The authors attribute this reduction in out-of-pocket spending to generous benefit plans, the absence of premiums, and lower cost sharing requirements in comparison to private insurance. The data shows that the reduction in out-of-pocket spending decreases poverty rates by 1.0 percent, 2.2 percent, and 0.7 percent among children, disabled adults, and the elderly, respectively. Medicaid also kept an additional 500,000 institutionalized persons out of poverty in 2010.

In order to approximate the impact of Medicaid on finances, Sommers and Oellerich model overall out-of-pocket spending using two analytical approaches. The preferred stochastic model, which relies on random variation, uses propensity score matching to account for both the in-kind transfer and risk protection effects of Medicaid. The stochastic technique attempts to estimate the impact of Medicaid by controlling for confounding variables in order to render groups with and without Medicaid coverage more comparable. Random values of out-of-pocket spending drawn from individuals without Medicaid are then assigned to each person with Medicaid coverage. Sommers and Oellerich derive the data used in their analysis from the 2011 Current Population Survey (CPS).

Using the preferred model to estimate the net change in percentage and number of people who would be living in poverty and extreme poverty in the absence of Medicaid reveals that in 2010 the program kept 2.1 million Americans out of poverty and 1.4 million out of extreme poverty. The absence of Medicaid is also associated with a $495 increase in out-of-pocket spending from $376 to $871 on average, and a six percent decrease in family income with a disproportionate impact on disabled adults, children, the elderly, and racial and ethnic minorities. The number of people reporting Medicaid coverage in the CPS is lower than the number of people in the state enrollment files; it appears that the actual poverty-reducing effect of Medicaid may be even greater than the numbers show.

Sommers and Oellerich also performed subgroup analyses, calculating changes in poverty rates and out-of-pocket spending associated with Medicaid across race/ethnicity, gender, and Census region. The results reveal that the poverty-reducing effects of Medicaid are greatest for minorities (“blacks and Hispanics”) and women, confirming the findings that these two populations make up a disproportionate share of Medicaid enrollment. The analysis also shows some differences across Census regions, with the greatest share of poverty reduction in the Northeast and the smallest in the Midwest.

As previously noted, the implications of the poverty-reducing effects of Medicaid are significant for major metropolitan areas that are home to a large percentage of low-income families and individuals. Potential Medicaid expansion under the Affordable Care Act (ACA) would lead to a decline in out-of-pocket spending among the newly enrolled, as Medicaid expansion is expected to increase the number of poor and near poor enrolled in the program by 10-20 million. In contrast, states that have opted out of Medicaid expansion through the ACA, where eight million impoverished and uninsured Americans are therefore ineligible for help, are unlikely to see a reduction in poverty.

Further efforts to reduce benefits or increase cost sharing, as is the case in states such as Illinois, which reduced the number of prescriptions covered for enrollees to four per month and imposed a co-pay for prescriptions for non-pregnant adults in 2012, would increase the financial burden on low-income populations and may have a substantial impact on Medicaid enrollment. This, in turn, could have negative repercussions on poverty rates throughout the region. With these recent policy decisions in mind, the findings of Sommers and Oellerich reveal the importance of Medicaid as a tool for poverty reduction and provide important evidence for policy makers at both the state and federal level on the need for sustained dialogue around Medicaid expansion.

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