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The Value of Medicaid Coverage

By June 29, 2015June 30th, 2015Commentary

Due to the reform law, Medicaid is the fastest growing source of health care coverage in the United States.  Compared to most employer-sponsored insurance or even Medicare, it is truly gold-plated coverage, wide-ranging benefits with most beneficiaries paying little or nothing.  How much value, in an economic sense, this coverage provides is the subject of a new paper published by the National Bureau of Economic Research.  (NBER Report)   Like most economic papers on health care this one deals in a set of obscure, to the average person, economic concepts and functions.  The researchers sought to understand the utility value of Medicaid to its recipients and to compare that to what it costs governments to provide the coverage.  The researchers used the Oregon Medicaid expansion lottery to study several theoretical approaches to understanding the utility or value of gaining coverage.  The “winners” of the Medicaid lottery got coverage with no service cost-sharing and premiums between $0 and $20 a month.  According to the authors’ calculations, more than half the value of Medicaid is in its effect on overall consumption and only about a third in its impact on health.  In most formulations, the value received by beneficiaries was substantially less than what the government is spending on Medicaid.  Some of this missing “value” is going to providers, who are now being paid for what might have been uncompensated care before.  One simple way of thinking about the study’s results is that it appears that Medicaid recipients would much rather give up Medicaid than have to pay the government’s cost of providing the coverage.  That does tell you something about its perceived value.

The implication of the research is that society is wasting resources by spending as much money as it does on Medicaid because the beneficiaries don’t get as much value from the program as society is spending on it.  Since Medicaid recipients pay none or little of the cost of the health care they receive through Medicaid, we shouldn’t be surprised that subjectively they may not place a high value on it, and this paper’s attempt at an objective analysis supports that notion.  Earlier research on the Oregon Medicaid expansion experiment had found that while the newly enrolled recipients received more health care and felt less health-related stress, objective outcomes on health status showed no improvement.  It seems to me that health economists still have a way to go before the concepts and formulas they use fully reflect reality, but I don’t doubt that it is possible, if not likely, that the Medicaid program is costing us more than it should and more than the value it is delivering.

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