Heterogeneity in crowd-out by risk aversion: Assessing the effect of the ACA Medicaid expansion

In this study, I estimate the heterogeneity in the crowd-out of private health insurance by risk aversion with the Medicaid expansion under the Affordable Care Act. Using data from the Health and Retirement Study, I find that the Medicaid expansion led to a decrease in private coverage among risk-loving individuals by 5 percentage points. However, the expansion did not lead to any meaningful change in private coverage for risk-averse individuals. This finding suggests that risk-averse individuals are willing to keep their private coverage, even though they become eligible for Medicaid. This potentially signals a sorting effect into private insurance. Under the assumption that highly risk-averse individuals typically display superior health conditions, this preferential behavior could signify a form of advantageous selection into private insurance. Furthermore, the expansion increased Medicaid coverage by 3.4 percentage points for risk-loving individuals, while not causing any discernible change in coverage among risk-averse individuals. Such differential responses could potentially influence the risk composition of Medicaid coverage, and subsequently impact the cumulative expenditure associated with it.