Public Health Insurance and Private Savings

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Abstract
We assess the effect of a means- and asset-tested social insurance program, Medicaid, on the savings behavior of households. We do so using data on both asset holdings and consumption, matched to information on the eligibility of families for health insurance coverage under this program. Exogenous variation in Medicaid eli- gibility is provided by the dramatic expansion of this program over the 1984-93 period. We document that Medicaid eligibility has a sizable and significant negative effect on wealth holdings, and we confirm this finding by showing a strong positive association be- tween Medicaid eligibility and consumption expenditures. We also exploit the fact that asset testing was phased out by the Medicaid program over this period to document that these Medicaid effects are much stronger in the presence of an asset test.

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