Crowd-in: the effect of private health insurance markets on the demand for Medicaid

Health Serv Res. 2006 Oct;41(5):1762-81. doi: 10.1111/j.1475-6773.2006.00563.x.


Objective: To investigate the effects of local labor market conditions and the availability of employer-sponsored health insurance on exits from the Medicaid program.

Data source: 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.

Study design: 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.

Principal findings: 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.

Conclusions: 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.

Publication types

  • Research Support, U.S. Gov't, P.H.S.

MeSH terms

  • Adolescent
  • Adult
  • Age Factors
  • California
  • Demography
  • Female
  • Health Benefit Plans, Employee / statistics & numerical data*
  • Humans
  • Male
  • Medicaid / economics*
  • Middle Aged
  • Models, Econometric
  • Unemployment / statistics & numerical data*