The Health Insurance Cliff: Evidence from Wisconsin's Unique Medicaid Design

Abstract

Wisconsin is the only U.S. state that covers adults through Medicaid up to exactly 100% of the Federal Poverty Level (FPL) while declining the Affordable Care Act's Medicaid expansion. This creates a sharp eligibility cliff at 100% FPL—below which adults qualify for BadgerCare (Medicaid), and above which they must purchase coverage on the health insurance exchange. Using regression discontinuity methods applied to American Community Survey data from 2014–2018, I estimate the effects of this eligibility threshold on health insurance coverage and labor supply. I find a statistically significant 7.7 percentage point discontinuity in Medicaid coverage at the 100% FPL threshold: individuals just below the cutoff are substantially more likely to have Medicaid than those just above. However, I find no statistically significant discontinuity in employment, hours worked, or earnings, suggesting that the coverage cliff does not induce substantial labor supply distortions. These results indicate that while Wisconsin's unique policy design creates a sharp coverage discontinuity, the availability of subsidized exchange plans above the threshold appears to mitigate labor supply responses. The findings have implications for ongoing debates about Medicaid expansion, benefit cliff design, and the labor market effects of health insurance eligibility thresholds. \vspace{0.5cm} Keywords: Medicaid, health insurance, labor supply, regression discontinuity, benefit cliffs, Wisconsin \vspace{0.5cm} JEL Codes: I13, I18, J22, H51