Understanding the Impact of Medicaid on Poverty

Tuesday, May 28th, 2019 Mark CheeMay 28th, 2019 • Bookmarks: 132

Medicaid continues to constitute a key component of the safety net for low-income households, covering more than 76 million Americans in 2016. Under the Affordable Care Act (ACA), 37 states expanded Medicaid to cover adults with incomes up to 138 percent of the federal poverty line. Previously, adults were required to meet specific income and categorical standards to qualify for the program. As a result, many adults without dependent children were excluded from Medicaid. In the wake of the 2018 midterm elections, more states are again considering expanding Medicaid. Newly elected Democratic governors in Kansas and Maine and ballot initiatives in Idaho, Nebraska and Utah have indicated support for expansion. While previous work has shown that Medicaid reduces child and infant mortality, increases access to care, and reduces out-of-pocket costs, its impact on poverty itself is less clear.

In a 2019 paper, Zewde and Wimer used data from the Annual Social and Economic Supplement to the Census Bureau’s Current Population Survey to assess the impact of Medicaid expansion before and after passage of the ACA and to explore how future expansion (or retraction) of the program might impact poverty going forward. The authors’ outcome of interest was the Supplemental Poverty Measure (SPM), developed by the Census Bureau as a modern alternative to the poverty line. Zewde and Wimer compared states that expanded Medicaid and states that did not, looking at both groups before and after expansion.

To explore the first question of their paper, regarding the impact of the original Medicaid expansion on poverty, Zewde and Wimer compared poverty in “expansion states” (states that expanded Medicaid) to poverty in expansion states before they expanded Medicaid and to poverty in nonexpansion states. They found that Medicaid expansion was associated with a reduction in poverty by an average of 0.917 percentage points — enough to lift about 690,000 Americans above the federal poverty line. This impact was concentrated among nonelderly adults (the intended targets of Medicaid expansion), but elderly Americans also benefitted. The authors further noted that prior work showed that Medicaid expansion resulted in increased participation among individuals who were eligible prior to expansion, which was attributed to streamlined enrollment procedures under the ACA (although this effect was not statistically significant).

To determine changes in the effect of Medicaid on poverty over time, the authors first compared actual out-of-pocket spending among Medicaid beneficiaries with hypothetical out-of-pocket spending by the same individuals in a world without Medicaid coverage for each year between 2010 and 2016. Using these results, the authors then ran similar analyses looking at the impact of Medicaid on the poverty rate. Zewde and Wimer found that while out-of-pocket spending increased between 2010 and 2016, Medicaid was responsible for greater reductions in out-of-pocket spending over time. In other words, Medicaid increasingly buffered against growing out-of-pocket costs. This same effect was seen in the poverty rate. In 2010, Medicaid reduced poverty by an average of 0.9 percentage points; by 2014, Medicaid had reduced poverty by an average of 1.4 percentage points.

Zewde and Wimer argued that these findings highlight the growing importance of Medicaid for low-income households. As the poverty reduction effect of Medicaid increases and out-of-pocket spending has grown, the economic consequences of cutting or expanding Medicaid have become larger than they were in previous years. As the potential impact of Medicaid on low-income Americans increases, policymakers considering proposals to expand Medicaid or restrict eligibility must take into account how these changes may affect poverty, especially in the face of increasing out-of-pocket costs.