Medicaid Expansions: The Work and Program Participation of Persons with Disabilities

A Dissertation Presented to the Faculty of The Heller School for Social Policy and Management, Brandeis University, Waltham, Massachusetts.

People with disabilities are economically disadvantaged compared to the non-disabled, experiencing lower employment rates, lower wages and higher poverty rates. The steady rise in Social Security Disability Insurance (DI) participation over the past two decades suggests that people with disabilities are working less. One potential explanation for the low employment rates and increasing DI participation rates relates two key factors, an unmet need for health care services and the negative work incentives of two public health insurance programs, Medicare and Medicaid. People with disabilities in need of health insurance face a tradeoff between substantial work and the alternatives, the combined cash and health coverage benefits of either Supplemental Security Income (SSI) and Medicaid, or DI and Medicare.

Recent federal legislation affects the tradeoff. The Balanced Budget Act of 1997 and the Ticket to Work and Work Incentives Improvement Act of 1999 gave states the authority to expand Medicaid coverage to include persons with disabilities at higher income levels. The expanded Medicaid coverage is the Buy-In Program. The Buy-In program alleviates the tradeoff by providing health insurance without the work limits and, if desired, without the associated SSI or DI participation. By de-linking health insurance from cash benefits and by increasing earnings limits, Buy-In provides new opportunities for people with disabilities to obtain health insurance while working at substantial levels.

This dissertation evaluates whether the new opportunities increase employment and/or to decrease disability benefit participation. The economic static labor supply model is used to determine the theoretically predicted impacts of the Buy-in program. The static labor supply model is a utility maximization model where individuals balance their labor and leisure to maximize utility under their wage constraint. Cash disability and Medicaid benefits are included in the model through the wage constraint. The static labor supply model predicts an increase in employment for DI recipients.  The effect on DI participation is indeterminate. The Buy-in program is not predicted to affect SSI participation or SSI recipients’ employment participation.

Two data sources, the March Supplement to the Current Population Survey and the Survey of Income and Program Participation, are used for samples of individuals with disabilities for 1995 through 2005. Three samples are identified, SSI recipients, DI recipients and individuals with a disability. A separate analysis is conducted to determine if samples based on self-reported work limitation are appropriate for use in evaluations of disability program effects on employment. I conclude that use of self-reported work limitation samples is not appropriate because of bias; individuals’ self-report of work limitation are dependent on work status.

The Buy-In effects on employment and disability benefit participation are identified by four sources of exogenous variation. The first source is state variation in program implementation; only thirty two states have Buy-In programs. The second is the extent of the Buy-In expansion; some state programs are more expansive than others. The third is variation in the receipt of disability cash benefits; the Buy-in program work incentives differ for Supplemental Security Income (SSI) recipients compared to for Social Security Disability Insurance (DI) recipients. The fourth is individual access; some disabled individuals are eligible for the expansions and some are not. There is considerable variation in all four sources.  Buy-In effects are estimated using difference-in-difference (DID) and difference-in-difference-in-difference (DDD) methods.

The findings of this study have important research and policy implications. There is a need for state level research to determine if there are individual state programs with substantial effects. State marketing efforts should be increased to ensure that potential program participants are aware of the Buy-In opportunities.  With the caveat that the effects are not known for individual states, these findings suggest that a solitary policy change to provide access to health insurance, without earnings limits and without links to cash disability benefits, for employed persons with disabilities is not likely to substantially change employment rates or DI participation. It is likely that other changes, in addition to access to health insurance, are necessary.