We use three Medicaid variables. The first is an estimate of the value of Medicaid benefits for an AFDC family with an adult and two children. Other things equal, we expect increases in this variable to increase participation. Robert Moffitt has constructed a similar variable valuing the Medicaid benefits for an AFDC family with an adult and three children (Personal correspondence with Robert Moffitt). Following Moffitt's' methodology, our Medicaid benefit for a family of three equals the mean Medicaid expenditures for AFDC mothers in a state plus two times the mean for AFDC children. The raw data for this variable are for fiscal years and come from Form HCFA-2082 Data Tables. We interpolate quarterly values from the fiscal year series and deflate the value by the appropriate regional CPI-U to obtain the series used in the model. We use the logarithm of this variable in the model.

The second Medicaid variable is intended to capture the potential effects of expansions of Medicaid benefits to low-income mothers and children who are not AFDC eligible, under OBRA86, OBRA87, OBRA89 and OBRA90. At our request, Aaron Yelowitz has compiled a measure of the share of children affected by these expansions for the years from 1988 to 1993, using data from the March Current Population Surveys and information about the expansions that he had compiled in the process of analyzing this issue using micro data (see Yelowitz, 1994). The measure is the percent of children made eligible for Medicaid whether or not they are in an AFDC household. We assume that the share is zero in every state before 1988, although a small number of children under the age of two and living in families with incomes below the federal poverty line were eligible in some states. We interpolate quarterly values from the annual series we received from Aaron Yelowitz to obtain the series used in the model. We experimented with several specifications of this variable including lagged specifications and the moving average of the previous four quarters.

The third Medicaid variable is a dummy variable representing restrictions on Medicaid funding for abortions. Because restrictions and the exact wording of Medicaid funding guidelines vary substantially by state and over time, it would be possible to group states into several different categories based on the relative restrictiveness of their guidelines. For this analysis, however, we simply construct a dummy variable identifying the existence of state Medicaid policies that deny payment for "therapeutic" abortions.(15) Medicaid programs not paying for "therapeutic" abortions maintain "substantive restrictions" on funding, permitting Medicaid funding of abortions only to save the life of the mother, to prevent "substantial physical health hazard," in the case of severe fetal deformity, and/or when a pregnancy is a result of rape or incest. We construct this variable based on month specific data obtained from Merz, et al (1995). For each state, the dummy variable is equal to one in those quarters during which the state refused Medicaid funding for therapeutic abortions. Otherwise, the variable is equal to zero.

The directions of the effects of such restrictions on AFDC participation and average monthly benefits are uncertain, in part because the directions of the effect on fertility are uncertain. Recent studies by Hass-Wilson (1996) and Currie, Nixon, and Cole (1995) show a negative relationship between restrictions on Medicaid payments for abortions and the share of pregnancies that are terminated by abortion. However, more restrictive abortion funding policies may also reduce pregnancies by increasing the risk or cost associated with pregnancy. The effect on AFDC participation is also ambiguous because the benefit is of little value to a pregnant mother unless she is already a participant. The effect on average monthly benefits is likely to depend on the effect on fertility -- if the mean number of children increase, the value of the benefit will increase.