Private Insurance Replaces Medicaid Cutbacks for Immigrants

Summary of working paper 9781
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Facing a potential loss of government-funded health benefits, non-citizen immigrants appear to aggressively seek out jobs that offer employer-sponsored benefits.

In the wake of the 1996 federal welfare reform legislation there were numerous predictions that new provisions denying or restricting benefits to non-U.S. citizens would greatly swell the ranks of immigrants who lacked health insurance. But a study by NBER Research Associate George Borjas finds that immigrants most affected by the cutbacks in Medicaid, the government program that provides health benefits to the poor, largely responded by securing jobs that included employer-sponsored benefits. As a result, he writes in Welfare Reform, Labor Supply and Health Insurance in the Immigrant Population (NBER Working Paper No. 9781), the anticipated steep rise in the immigrant uninsured never materialized.

"This increase in the probability of coverage through employer-sponsored insurance was large enough to completely offset the Medicaid cutbacks," Borjas writes. He reaches his conclusion after examining the various state responses to the welfare reform provisions and studying how they affected non-citizen participation in government-funded health insurance.

According to Borjas, a case can be made that the federal legislation ultimately did not greatly restrict immigrant access to benefits. Nonetheless, he notes that some states responded to its "presumed" adverse impact by increasing state-funded assistance. Depending on what they did or did not provide to immigrants, Borjas classifies the states as either "more generous" or "less generous."

Not surprisingly, Borjas reports that Medicaid usage among non-citizen immigrants declined much more sharply in the states that were less generous with their post-welfare reform benefit offerings. But what is surprising is that this did not translate into an uptick in uninsured immigrants. In fact, overall health insurance coverage rates for immigrants actually appeared to be better in the less generous states than in the more generous states.

"Most striking," observes Borjas, is that "the health insurance coverage for non-citizens dropped by 1.7 percentage points in the more generous states but rose by 2.1 percentage points in the less generous states." In other words, the more stingy the state was with its benefits, the more likely its non-citizen immigrants were to have health insurance.

The explanation Borjas offers for this phenomenon is quite simple. Facing a potential loss of government-funded health benefits, non-citizen immigrants appear to aggressively seek out jobs that offer employer-sponsored benefits. While after 1996 employer coverage for non-citizens rose by only 2.7 percentage points in the more generous states, Borjas reports that it shot up by "an astounding 11.4 percentage points in the less generous states," from 36.5 percent of those states' non-citizens to 47.9 percent.

Borjas asserts that the observed increase in employer-sponsored coverage cannot simply be dismissed as a result of the booming economy of the late 1990s, as opposed to a "behavioral response on the part of immigrants." If the national economy were the key factor, there would not have been such a sharp contrast between employer coverage in the less generous versus the more generous states.

Ultimately, Borjas believes his findings show that states did not need to "protect" their non-citizen immigrants from Medicaid cutbacks. Given how coverage rates went up in the states that were more restrictive, Borjas concludes that people in this group are quite capable of taking care of themselves.

"In an important sense, the state programs were unnecessary," Borjas writes. "In the absence of these programs, the targeted immigrants themselves would have taken actions to reduce the probability that they would be left without health insurance coverage."

-- Matthew Davis