Public Health Insurance and Private Savings

Jonathan Gruber, Aaron Yelowitz

NBER Working Paper No. 6041
Issued in May 1997
NBER Program(s):Economics of Aging, Children, Health Care, Public Economics

Recent theoretical work suggests that means and asset-tested social insurance programs can explain the low savings of lower income households in the U.S. We assess the validity of this hypothesis by investigating the effect of Medicaid, the health insurance program for low income women and children, on savings behavior. We do so using data on asset holdings from the Survey of Income and Program Participation, and on consumption from the Consumer Expenditure Survey, matched to information on the eligibility of each household for Medicaid. Exogenous variation in Medicaid eligibility is provided by the dramatic expansion of this program over the 1984-1993 period. We document that Medicaid eligibility has a sizeable and significant negative effect on wealth holdings; we estimate that in 1993 the Medicaid program lowered wealth holdings by 17.7% among the eligible population. We confirm this finding by showing a strong positive association between Medicaid eligibility and consumption expenditures; in 1993, the program raised consumption expenditures among eligibles by 5.2%. We also exploit the fact that asset testing was phased out by the Medicaid program over this period to document that these Medicaid effects are much stronger in the presence of an asset test, confirming the importance of asset testing for household savings decisions.

download in pdf format
   (438 K)

email paper

A non-technical summary of this paper is available in the November 1997 NBER Digest.  You can sign up to receive the NBER Digest by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6041

Published: Journal of Political Economy, Vol. 107, no. 6 (December 1999): 1249-1274. citation courtesy of

Users who downloaded this paper also downloaded* these:
Hubbard, Skinner, and Zeldes w4884 Precautionary Saving and Social Insurance
Kotlikoff w2008 Health Expenditures and Precautionary Savings
Gruber and Madrian w4469 Health Insurance Availability and the Retirement Decision
Engen and Gruber w5252 Unemployment Insurance and Precautionary Saving
Gardner and Gilleskie w12208 The Effects of State Medicaid Policies on the Dynamic Savings Patterns of the Elderly
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us