Medicaid Mysteries: Transitional Benefits, Medicaid Coverage, and Welfare Exits

Article excerpt

Medicaid mysteries: Transitional benefits, Medicaid coverage, and welfare exits

Introduction

Both logic and anecdote suggest that Medicaid ought to have an important influence on welfare dynamics and movements to self-support. For every dollar spent in fiscal year 1987 providing cash support to families enrolled in the Aid to Families with Dependent Children (AFDC) program, another 69 cents was spent providing AFDC-related Medicaid protection (Committee on Ways and Means, 1989). (1) And unlike cash benefits which phase out as income rises, Medicaid benefits are typically provided in full or not at all. (2) Economic theory would certainly predict some important impacts of a benefit program of this magnitude. Moreover, welfare clients and administrators assert that the loss of Medicaid benefits is one of the major obstacles to leaving welfare and seeking market employment.

Largely to overcome the likely disincentives that loss of Medicaid coverage might have for those thinking about leaving welfare, Congress has enacted several types of transitional Medicaid protection. For a number of years, when someone left welfare for work, they were, in principle, eligible for at least 4 months of transitional Medicaid-only coverage. The Family Support Act of 1988 (Public Law 100-485) expanded transitional benefits further.

Yet there has been relatively little systematic empirical work that looks descriptively at the dynamics of Medicaid or the use of transition benefits. The only article documenting Medicaid dynamics in detail is Short, Cantor, and Monheit (1988). It does not examine transitional benefits at all. Only a couple of major papers empirically examine whether the loss of Medicaid actually deters exists from welfare. Blank (1989) found little evidence that the State level of Medicaid benefits or the presence of a medically needy program had any significant influence on welfare participation. But Blank's sample allowed her to separately identify only four States, and so she had little cross-state variation with which to identify Medicaid effects.

The only paper that used longitudinal data to examine the links between the loss of Medicaid and welfare exits is Moffitt and Wolfe (1989). They used a sophisticated model with individual data drawn from the Survey of Income and Program Participation (SIPP) to examine the impacts of Medicaid. They found very strong effects of private insurance (or the lack thereof) on AFDC participation. They estimated that AFDC caseloads would drop by 10 percent if all working female heads of households were guaranteed private insurance. And if all working female household heads were given coverage equivalent to that of Medicaid, the caseload was projected to drop by 16 percent. They also found that families with higher expected Medicaid benefits (presumably because of greater medical need) are more likely to participate in AFDC. The incentive effects of Medicaid appear to operate chiefly with people expecting very high medical costs.

In contrast to previous efforts, this article, drawn from a larger report Medicaid Mysteries: Medicaid and Welfare Dynamics (Ellwood et al., 1990), examines Medicaid dynamics and behavioral impacts using actual program data from Medicaid in two States, California and Georgia. We begin with a brief review of Medicaid eligibility provisions and consider whether or not welfare recipients can be expected to understand the transitional provisions. Next we discuss our unique data set. We then explore two main questions: First, what happens to Medicaid coverage once people leave cash assistance, and, in particular, how many people get some type of transitional or ongoing Medicaid-only coverage? Second, are families with high expected future medical costs less likely to leave cash assistance, and if so, is lack of medical coverage the reason such families are hesitant to leave?

Medicaid eligibility

Considerable confusion surrounds Medicaid eligibility. …