Health Coverage in a Recession

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Abstract

This brief, part of the Urban Institute's "Recession and Recover" series, examines how the Medicaid and SCHIP programs respond during a recession and how that response may differ in the current recession from their responses in the past. It also assesses the extent to which health insurance coverage may decline as unemployment rises.

Introduction

Economic downturns create serious problems with health coverage. When unemployment rises, fewer workers and dependents receive employer-sponsored insurance (ESI). Some who lose ESI qualify for Medicaid or the State Children’s Health Insurance Program (SCHIP), while others become uninsured.

That said, the relationship between economic conditions and health coverage is complex. Although Medicaid enrollment among the elderly and people with disabilities is modestly affected by changes in the business cycle, the number of eligible low-income families with children changes dramatically when economic conditions worsen. Other factors outside the business cycle that affect Medicaid and SCHIP costs include the ongoing decline in the number of workers receiving ESI and changes to federal and state policy. Important changes in the latter category include the “de-linking” of Medicaid from cash assistance in the wake of 1996 welfare reform legislation, which reduced the number of eligible families receiving health coverage, and enactment of SCHIP in 1997.

Broader coverage trends over time bear out this complexity. Until the start of this decade, the percentage of Americans with ESI and Medicaid varied with employment. When more people were out of work, fewer had ESI and more had Medicaid. When unemployment rates fell, more people had ESI and fewer relied on Medicaid. However, from 2001 to 2007, other factors swamped the effects of the business cycle; in good times and bad, ESI declined and Medicaid caseloads grew .

To isolate the effect of macroeconomic conditions on health coverage, Urban Institute researchers examined 14 years of state-level data, controlling for multiple confounding factors, including changing eligibility rules for health coverage in each state (Dorn et al. 2008). They found that each 1 percentage point rise in the national unemployment rate can be expected to increase Medicaid and SCHIP enrollment by 1 million people (600,000 children and 400,000 nonelderly adults). That would increase Medicaid and SCHIP costs by $3.4 billion, including $1.4 billion in state spending. This represents a 1 percent increase in total Medicaid and SCHIP expenditures. Along with increasing Medicaid and SCHIP enrollment, a 1 percentage point increase in unemployment would also cause the number of uninsured adults to grow by 1.1 million.

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