NBER Report: Medicaid Expansion Reduces Incentives to Work

A working paper released this month from the National Bureau of Economic Research concludes that public insurance programs reduce incentives to work for low-income childless adults—precisely the population Medicaid expansion under the Affordable Care Act targets.

The paper comes on the heels of the widely-cited February 2014 Congressional Budget Office report estimating that the ACA, including Medicaid expansion, would cause a decline of 2.5 million full-time-equivalent employees by 2024. In that case, proponents of the ACA  defended the findings by arguing it meant more Americans would be able to pursue their dreams. The economist whose work the CBO relied on in the report roundly dismissed such claims—“I don’t know what their intentions are, but it looks like they’re trying to leverage the lack of economic education in the audience by making these sort of points.”

In a warning to lawmakers, NBER’s recent working paper concludes:

[P]olicymakers should be prepared for a reduction in labor supply among childless adults affected by the Medicaid expansion under the Affordable Care Act. These labor supply effects may be sufficiently large to be noticeable economy wide. For example, if 21.3 million additional adults gain Medicaid coverage following the ACA expansions, then approximately between 511,000 and 2.2 million fewer individuals will be employed as a result of the labor supply response.

Lanhee Chen from Bloomberg notes the paper is among the clearest and strongest examples of why states should reject Medicaid expansion. Expansion “will keep many beneficiaries in poverty because it creates strong disincentives to work,” Chen said. He goes on to say:

There is already something intuitive about the notion that robust public assistance destroys the incentive to work and hinders upward mobility. This research provides strong evidence for the contention that enrolling in Medicaid traps people in poverty and makes it harder for them to make their way into the middle class. Furthermore, it links the Medicaid expansion to the weakening of our nation’s economy. And it makes the case that rather than increasing economic opportunity, Obamacare—and its Medicaid expansion more specifically—actually may kill it.

States continue facing pressure to implement expansion under the ACA, and understanding potential unintended and unwelcome consequences remains critical, particularly when those consequences may harm the very group policymakers are seeking to help. In any case, at least according to Chen, NBER’s paper is the best argument yet against Medicaid expansion.