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Work Incentives of Medicaid Beneficiaries and the Role of Asset Testing

Svetlana Pashchenko () and Ponpoje Porapakkarm ()

No 2016-016, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: Should asset testing be used in means-tested programs? These programs target low-income people, but low income can result not only from low productivity but also from low labor supply. We aim to show that in the asymmetric information environment, there is a positive role for asset testing. We focus on Medicaid, one of the largest means-tested programs in the US, and we ask two questions: 1) Does Medicaid distort work incentives? 2) Can asset testing improve the insurance-incentives trade-off of Medicaid? Our tool is a general equilibrium model with heterogeneous agents that matches many important features of the data. We find that 23% of Medicaid enrollees do not work in order to be eligible. These distortions are costly: if individuals' productivity was observable and could be used to determine Medicaid eligibility, this results in substantial ex-ante welfare gains. When productivity is unobservable, asset testing is effective in eliminating labor supply distortions, but to minimize saving distortions, asset limits should be different for workers and non-workers. This work-dependent asset testing can produce welfare gains close to the case of observable productivity.

Keywords: means-tested programs; health insurance; Medicaid; asset testing; general equilibrium; life-cycle model (search for similar items in EconPapers)
JEL-codes: D52 D91 E21 H53 I13 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias and nep-lab
Date: 2016-07
Note: M
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http://humcap.uchicago.edu/RePEc/hka/wpaper/Pashch ... entives-medicaid.pdf First version, July, 2016 (application/pdf)

Related works:
Working Paper: Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing (2016) Downloads
Working Paper: Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing (2013) Downloads
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