The Impact of Public Health Insurance on Labor Market Transitions

An often-cited difficulty with moving low-income families out of welfare and into the labor force is the lack of health insurance in many low-wage jobs. Consequently, many low-income household heads may be reluctant to leave welfare and thereby lose health insurance coverage for their children. The expansions in the Medicaid program to cover low-income children and pregnant women who are not eligible for cash benefits may help alleviate the problem by allowing disadvantaged household heads to accept jobs which do not provide health insurance. We use a discrete time (monthly) hazard rate model and data from several panels of the Survey of Income and Program Participation to assess whether expansion of public health insurance to cover children of working parents contributes to increase transitions out of welfare and into employment and reduce transitions into welfare and out of employment. We model spells in progress and spells that start during the sample separately, which allows us to assess the effect on long-term welfare recipients. We find some evidence that expanded Medicaid eligibility for children leads single mothers to exit welfare more quickly; however the effects are not robust to the inclusion of year effects. In addition, the effect appears to be strongest and most consistent among long-term recipients (as proxied by recipients who begin the sample on welfare). We find less evidence of an effect of expanded Medicaid eligibility on transitions into welfare. A somewhat surprising finding is that higher AFDC income limits also appear to have little effect on the probability of such transitions.