Impact of State Medicaid Program on AFDC Participation

Abstract

To help low-income households meet their medical needs and remain off welfare programs, many states provide a so-called Medically Needy program. Under this program, low-income women with dependent children who meet all criteria for categorically needy assistance, but who do not participate in AFDC, may qualify for Medicaid. In this study, I develop a model based on the economic theory of income-leisure tradeoff and use the data reported in the Survey of Income and Program Participation to analyze how an extended Medicaid program affects AFDC participation of low-income female household heads. The empirical findings indicate that the presence of the Medically Needy program is associated with a decrease in the likelihood of AFDC participation. This study also discusses the implications of extended Medicaid coverage as a policy alternative in reducing the likelihood of AFDC participation of low-income female-headed households.