Public Policy and Health Insurance Choices of the Elderly: Evidence from the Medicare Buy-In Program

Abstract

This study provides evidence on health insurance decisions of senior citizens. Nearly all senior citizens have health insurance coverage through Medicare, but poor seniors may also qualify for Medicaid that fills many gaps in Medicare coverage. Since 1987, the Medicaid program has expanded eligibility. Using the SIPP, I find that Medicaid eligibility increased from 8.7% in 1987 to 12.4% in 1995. For every 100 elderly who became eligible, approximately 50 took up Medicaid, but more than 30 dropped private coverage, resulting in crowd-out of 60%. Crowd-out came from individuals dropping privately purchased health insurance rather than dropping employer-provided retiree health insurance. The roles of asset tests, health status, and the panel structure of the SIPP are also explored. I find that a major strength of the SIPP is in its point-in-time asset information for determining Medicaid eligibility, while the changing income and demographic information over the course of the 2-year panel adds little insight beyond cross-sectional data.

Keywords: Medicaid; Medicare; Health insurance; Crowd-out; Aging

JEL Classification: H51; I11; J14