It’s budget season for state and federal governments, and everyone is talking about Medicaid.
In Ohio, where I live, the state budget includes provisions to eliminate coverage for the “Medicaid Expansion” population if federal funding is decreased. Meanwhile, the Ohio Department of Medicaid is seeking a waiver from the federal government to impose work requirements on that population.
At the federal level, the United States Senate is debating proposals to reduce federal funding for Medicaid and place stricter work requirements on participants in the program.
For someone like me who spends a lot of time trying to understand the impacts of public policies on poverty, Medicaid is a tricky program. The Supplemental Poverty Measure is an alternate poverty measure developed by the Census Bureau to update the Great Society-era Official Poverty Measure and understand the impact of public policies on poverty. The Supplemental Poverty Measure does a great job of estimating the impact of a range of public policies like Social Security, refundable tax credits, SNAP, housing subsidies, SSI, the Child Tax Credit, other cash and noncash benefits, unemployment insurance, and federal taxes on poverty.
You will notice Medicaid is not on that list. This is despite the fact that Medicaid provides health insurance to 83 million Americans, making it the largest health insurance program in the country.
Measuring the impact of health insurance on poverty has challenges. Social security, tax credits, SNAP, housing subsidies–programs like these all have specific dollar values. Insurance’s value, though, comes from its hypothetical value under scenarios when it needs to be used. Part of the value comes from risk reduction.
Some researchers have tried to quantify this value by estimating the willingness low-income people have to pay for Medicaid. While this can give some insight into the value of Medicaid, many researchers see problems with estimating value using willingness to pay.
Researchers at the Massachusetts Institute of Technology, Harvard, and Dartmouth argue low willingness to pay for Medicaid reflects widespread availability of free medical care for the uninsured. The problem with this is that (1) valuing Medicaid at the willingness to pay of the uninsured for the coverage likely underestimates the value of Medicaid against no system at all, and (2) this system of informal “insurance” would need to be counted alongside the value of Medicaid if this approach were used. As difficult a task as valuing Medicaid is, valuing informal insurance is even more difficult.
So do we have a better way to estimate Medicaid’s impact on poverty? Some researchers have tried to answer this question.
In a 2019 working paper, researchers at the City University of New York develop an alternate poverty measure that incorporates health costs into its calculation. How they do this is by adding the cost of a silver plan (generally accepted as a moderate coverage plan) in the health insurance marketplace to the poverty threshold, assuming health insurance is a “basic need.” What they find is that Medicaid reduces the child poverty rate by 5.2 percentage points–from 23.7% to 18.4%. This is comparable to the impact of tax credits, which they estimate reduce child poverty by 6.5%.
A problem with this approach is that it mixes a new way of estimating “basic needs” into the supplemental poverty measure. These researchers simply take the cost of a certain type of plan and add it to the supplemental poverty measure threshold, calling that a new threshold for what is considered “poverty.” The supplemental poverty measure threshold, though, is not calculated by top-down, administrative decisions about what qualifies as fulfillment of a basic need. It instead uses typical spending on food, clothing, shelter, and utilities as a baseline for calculating basic needs.
There is a reason they do this, though: health care is not a market functioning in the same way food, clothing, shelter, and utilities are. Because so many people spend nothing on health insurance due to Medicaid, Medicare, and going uninsured, there aren’t typical spending patterns to estimate. These researchers try to get around this problem by choosing a number and sticking to it, which might be a good starting point, but ultimately still reflects the preferences of policymakers and not the preferences of individuals receiving health insurance.
A 2013 study by researchers at the federal Department of Health and Human Services uses the Supplemental Poverty Measure more directly to answer this question. What they do is estimate how much Medicaid saves households in out-of-pocket medical spending by comparing out-of-pocket medical spending between similar households with and without Medicaid. They then add these savings to household income to see how much these savings impact poverty rates. They find these out-of-pocket savings reduce the federal poverty rate by 0.7%, the child poverty rate by 1.0%, and the poverty rate among disabled adults by 2.2%.
While these numbers may seem small, they are significant in the grand scheme of the United States population, representing at least 2.6 million Americans kept out of poverty by Medicaid payments in 2010, making it the country’s third-largest poverty program.
This does miss one important value of Medicaid, though: the self-assessed value of risk reduction for households. If households have lower risk tolerance, Medicaid could have higher value for them by reducing that risk.
A 2019 study by researchers at Columbia University looked at recent expansions of Medicaid to see their impact on poverty. These researchers found Medicaid expansion reduced poverty rates in expansion states by 0.9 percentage points and that rising costs of health care since initial implementation have only increased the impact of Medicaid on poverty over time.
Ultimately, we don’t have a single answer for what the exact impact of Medicaid is on poverty. What we can tell, though, is that the results we have from studies available now are suggestive of large impacts. While Medicaid could be a place for state and federal governments to save money in the short-term, the public will likely have to stomach long-term costs associated with poverty if Medicaid is scaled back substantially. The pain of cutting this large health insurance program may outweigh the pain of paying for it.