The Employment Effects of Changes in Public Health Insurance

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There is a powerful work disincentive from public health insurance eligibility.

Craig Garthwaite, Tal Gross, and Matthew Notowidigdo study the labor supply effects of one of the largest public health insurance disenrollments in U.S. history. This disenrollment occurred in 2005 in Tennessee. The state, facing mounting deficits, discontinued its expansion of TennCare, the state's Medicaid system. Approximately 170,000 residents abruptly lost public health insurance coverage.

In Public Health Insurance, Labor Supply, and Employment Lock (NBER Working Paper No. 19220), the authors analyze both across- and within-state variation in exposure to the disenrollment. They find an immediate increase in job search behavior and a steady rise in both employment and health insurance coverage following the disenrollment. The study relies primarily on data from the Annual Social and Economic Supplement of the Current Population Survey to determine which Tennessee residents were insured, what form of health insurance coverage they possessed, whether they were working, and the number of hours they worked. The findings suggest that there is a powerful work disincentive from public health insurance eligibility, and also indicate a high valuation of health insurance among the individuals facing disenrollment.

The authors note that their findings may offer some insights on the way the Affordable Care Act may affect Medicaid enrollments, since those who lost TennCare coverage were very similar to individuals targeted by the ACA. The results imply a potentially large increase in Medicaid enrollments from the implementation of the ACA. In 2011, approximately 8.9 million Americans with incomes below 139 percent of the poverty line were covered by employer-provided health insurance. The authors estimate that if all states implement expanded Medicaid in response to the ACA, then approximately 4.2 million of these privately insured individuals will move into public coverage.

--Matt Nesvisky