Question

Explain how Medicaid can cause a disincentive to work. What factors affect the magnitude of that disincentive? What steps could we take to correct this problem?

Answer 1

It will cause disincentive by increasing socal security of the people. They will feel not threatened by monetary costs of diseases. They know that govt is going to help them at critical junctures through Medicaid. It depends on substitution effect and income effect of Medicaid or money income. We can correct this behaviour by linking Medicaid to the income or wage of workers. Greater the wage greater should be help or subscription under Medicaid. But such policy would obviously led to inequality and the aim of helping poor will be defeated.