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help, such as purchasing private health insur-

vidual's assets is often used to calculate eligibil-

ance.

ity; thus some people may reduce or avoid asset

Prior to the enactment of Medicaid, many

accumulation to become or remain eligible.

working-class Americans financed their med-

Yelowitz and MIT's Jonathan Gruber

ical expenses with the help of fraternal orga-

found that Medicaid eligibility was associat-

ed with reduced asset holdings21 among

nizations, also known as mutual aid societies.

According to historian David Beito, by 1920

nonelderly households. Rather than accumu-

such organizations "dominated the field of

late assets, recipients shifted income to con-

health insurance. They offered two basic vari-

sumption. Increased consumption does not

eties of protection: cash payments to com-

jeopardize eligibility, but substituting con-

pensate for income from working days lost

sumption for asset accumulation (such as

and the care of a doctor. Some societies . . .

purchasing a car for transportation to work)

founded tuberculosis sanitariums, specialist

decreases the likelihood of escaping poverty.

clinics, and hospitals." Beito writes, "A con-

Yelowitz and Gruber estimate that in 1993

servative estimate would be that one of three

Medicaid reduced asset holdings among eli-

adult males was a member [of such organiza-

gible households by the equivalent of $1,600

to $2,000 in today's dollars.22

tions] in 1920, including a large segment of

In 1993

the working class." Moreover, these organiza-

Asset tests for nonelderly Medicaid benefi-

Medicaid reduced

tions "achieved a formidable presence among

ciaries are increasingly less common. By 2004,

blacks and immigrant groups."25

only five states required household asset tests

asset holdings

when determining children's eligibility,

Beito focuses on the effect that govern-

among eligible

although 28 states still required asset tests for

ment-provided medical care for the poor had

determining parents' eligibility.23 Where asset

households by

on mutual aid societies' efforts to provide med-

ical care to low-income residents of the

tests still exist, they likely create even larger dis-

the equivalent of

Mississippi Delta. "For twenty-five years before

incentives to accumulate wealth now than in

$1,600 to $2,000

1967," he writes,

1993 as a result of subsequent expansions of

eligibility and benefits. Large exemptions

in today's dollars.

"thousands of low-income blacks in the

from asset tests allow significant numbers of

Mississippi Delta obtained affordable

well-to-do seniors to rely on Medicaid for

nursing home and other long-term care.24

hospital care through fraternal societies.

Although there were clear deficiencies,

Asset tests present policymakers with a

the quality was reasonably good, espe-

tradeoff between undesirable effects. If asset

cially given the limited resources. Most

limits are low, individuals will impoverish

importantly, the Taborian Hospital and

themselves, whether in reality or on paper, to

the Friendship Clinic excelled in provid-

become or remain eligible for a subsidy. Thus

ing benefits to patients that were not

low asset limits can lead to both increased

easily quantifiable, including personal

poverty and increased fraud. On the other

attention, comfortable surroundings,

hand, raising or eliminating asset limits opens

and community pride. Both societies

Medicaid to wealthier individuals. Thus the

accomplished these feats with little out-

gradual elimination of asset tests results in

side help. The Knights and Daughters of

scarce tax dollars going to less needy benefi-

Tabor and the United Order of

ciaries. Such expansions in turn increase other

Friendship of America forged extensive

types of crowd-out.

networks of mutual aid and self-help for

The most-researched way that Medicaid

thousands of low-income blacks."26

leads eligible and potentially eligible individ-

uals to alter their behavior is by encouraging

them not to take steps to finance their own

However, the advent of federal assistance

medical expenses. Such steps include engag-

changed the landscape. "In 1966 the federal

ing in private communal assistance or self-

Office of Economic Opportunity (OEO), the

6