Labor supply responses to government subsidized health insurance: evidence from kidney transplant patients.

Between 1993 and 1995 Medicare increased the coverage of immunosuppression medication for kidney transplant recipients from 1 to 3 years following transplantation. The universal Medicare eligibility among kidney transplant patients provides a unique opportunity to explore labor supply responses to public insurance provision among a large number of men and women of prime working age and of all income levels. Although these patients are likely to be less healthy than the general population, upon receiving a kidney transplant, the main health problem of an individual with kidney failure, the lack of functioning kidneys, is removed. The income effects associated with the large transfer payment may discourage labor supply, while the potential health benefits of the coverage extension may promote labor supply. Results indicate that Medicare's increased medication coverage led to decreases in labor force participation among part time workers. These results suggest that potential labor supply reducing income effects should be taken into account when discussing the possibility of expanded public health insurance coverage, particularly for other groups of individuals with high expected medical expenditures, such as the elderly, or those with chronic conditions, such as diabetes. These results are useful considering the forthcoming expansion of government aid to purchase health insurance.