The Effect of Medicaid on Consumption and Labor Supply: Insights from the Affordable Care Act

Abstract

Several recent studies on the effects of the Affordable Care Act Medicaid expansion have found little or no change in labor supply. These results are at odds with predictions by the Congressional Budget Office and previous research on the Medicaid expansions of the 1980's and 1990's, which suggest that increased Medicaid eligibility should result in a decrease in labor supply. However, the recent expansion has not targeted the same groups as previous expansions. Previous Medicaid eligibility was usually restricted to pregnant women and low-income families with children, but the ACA expansion extended new eligibility to childless individuals as well. I estimate the effect of the Medicaid expansions on labor supply, and find no significant change, regardless of family structure. I also find that the expansion resulted in lower out-of-pocket expenditures for medical services, and lower expenditures for health insurance, which may be indicative of crowd out. If Medicaid beneficiaries do not change their labor supply decisions, then they have experienced an effective increase in income due to healthcare savings, and must either save or consume that income. I examine the effect of the expansion on consumption patterns and find some evidence of increased spending in housing for married parents, and in transportation for couples without children.