Difference-in-difference models provide consistent estimates of the treatment effect only if, in the absence of the policy intervention, the time path in the outcome is the same for both the treatment and comparison states (Meyer 1995). For example, if Medicaid enrollment trends upward (downward) at a faster rate within the comparison group relative to the ELE states, the difference-in-difference model will understate (overstate) the benefits of ELE implementation. Given the widespread variation in Medicaid/CHIP participation, enrollment, and policies across states, we anticipate that some non-ELE states will have similar trends in enrollment compared with ELE states, whereas others will have dissimilar trends.
Using a method similar to that employed by Lien and Evans (2005), we chose comparison states that had similar pre-ELE trends in Medicaid and Medicaid/CHIP enrollment as the ELE states. Because the first ELE program was implemented in 2009, we focus on trends in the 2007 and 2008 quarters before adoption of ELE. To select the comparison states, we estimate models similar to Equations (1) and (2) that include a time trend interacted with an ELE state indicator. We include one non-ELE state at a time and test if the average trend among ELE states differs from the trend for that non-ELE state. If we reject the hypothesis at the 5 percent level that the coefficient associated with the interaction term equals zero, we exclude the non-ELE state from the sample, thus increasing the likelihood of choosing comparison states that possess a similar trend in Medicaid or Medicaid/CHIP enrollment as the average treatment state before ELE implementation.
The final Medicaid model includes 33 comparison states and the final Medicaid/CHIP model includes 25 comparison states. In the Medicaid model, we exclude Colorado, and Wyoming from the comparison group. In the combined Medicaid/CHIP model, we exclude California, Connecticut, Florida, Indiana, Kentucky, Missouri, North Dakota, Ohio, Tennessee, and Texas. We excluded Arizona, Illinois, Maine, Montana, Nevada, New Mexico, Virginia, and Washington from both models.