Skip over navigation

Journal Issue: Special Education for Students with Disabilities Volume 6 Number 1 Spring 1996

REVISITING THE ISSUES: The Effects of Medicaid Expansions on Insurance Coverage of Children
Lisa C. Dubay Genevieve M. Kenney


In response to declining health status indicators for low-income children and growing disparities in access to health care between the insured and the uninsured,1-4 Medicaid coverage for young children was expanded in the late 1980s. Whereas Medicaid eligibility for children had been restricted to categorical eligibility based on eligibility for Aid to Families with Dependent Children (AFDC), new legislation expanded eligibility for children based on income alone, with income cutoffs higher than those specified for AFDC. Congress permitted and eventually mandated states to provide Medicaid coverage for children up to age six in families with incomes up to 133% of the federal poverty level and to children born after September 30 1983, with family incomes up to 100% of poverty. It also gave states the option (starting in 1988) to cover infants with family incomes up to 185% of poverty.5 The hope was that these expansions would reduce the number of uninsured children and, thus, improve children's health.

Between 1988 and 1993, the number of children receiving Medicaid-covered services grew by 53%.6 Over the same period, however, employer-sponsored insurance coverage was declining,7,8 and the number of uninsured children remained high (8.7 million in 1993).9

This article examines several important questions about the impact of the Medicaid expansion. First, for which groups did Medicaid coverage actually expand? Second, did this expansion merely substitute for private-sector coverage rather than covering children who were previously uninsured? These questions are important because, to the extent that Medicaid fails to enroll the population targeted by the expansions or simply substitutes public for what had been private coverage, the expected, desired health effects may not occur.10

Two other studies have recently examined the changing insurance status of children using data from the Current Population Survey (CPS). While these studies find similar trends, they differ substantially in their interpretation of the trends. One study, by Newacheck and colleagues,11 attributes all of the change in Medicaid coverage to secular declines in employer-sponsored coverage; the other study, by Cutler and Gruber,12 attributes a substantial portion of the change in Medicaid coverage to crowd-out but fails to control adequately for secular declines in employer-sponsored coverage.13

This Revisiting the Issues article sheds more light on the issue of crowd-out (the voluntary substitution of free health insurance coverage for children under Medicaid for employer-sponsored insurance when the terms of the employer-sponsored coverage have not changed substantially) by explicitly controlling for the secular declines in the offering, financing, and take-up of employer-sponsored insurance using data from the Current Population Survey to track changes between 1988 and 1993. Because these data are cross-sectional and do not follow specific families and children over time, it is not possible to be definitive about what caused the changes that were observed over this period. But it is possible to trace the extent to which trends in employment-based coverage for Medicaid-eligible children did or did not mirror trends for the ineligible population, an analysis which provides a preliminary assessment of the likely extent of any crowding out that might have occurred.