The poverty-reducing effect of Medicaid

•We modeled the impact of Medicaid on out-of-pocket spending.•We then calculated Medicaid's poverty-reducing impact using the Census Bureau's Supplemental Poverty Measure.•Medicaid reduced out-of-pocket medical spending per enrollee from $871 to $376 per year.•Medicaid kept at least 2.6 million Americans out of poverty in 2010, making it the third-largest anti-poverty program in the U.S.•Poverty-reducing effects of Medicaid were greatest for disabled adults, the elderly, children, and racial/ethnic minorities. Medicaid provides health insurance for 54 million Americans. Using the Census Bureau's Supplemental Poverty Measure (which subtracts out-of-pocket medical expenses from family resources), we estimated the impact of eliminating Medicaid. In our counterfactual, Medicaid beneficiaries would become uninsured or gain other insurance. Counterfactual medical expenditures were drawn stochastically from propensity-score-matched individuals without Medicaid. While this method captures the importance of risk protection, it likely underestimates Medicaid's impact due to unobserved differences between Medicaid and non-Medicaid individuals. Nonetheless, we find that Medicaid reduces out-of-pocket medical spending from $871 to $376 per beneficiary, and decreases poverty rates by 1.0% among children, 2.2% among disabled adults, and 0.7% among elderly individuals. When factoring in institutionalized populations, an additional 500,000 people were kept out of poverty. Overall, Medicaid kept at least 2.6 million—and as many as 3.4 million—out of poverty in 2010, making it the U.S.’s third largest anti-poverty program.