Abstract:Public health insurance benefits in the U.S. are increasingly provided by private firms, despite mixed evidence on welfare effects. We investigate the impact of privatization in Medicaid by exploiting the staggered introduction of county-level mandates in Texas that required disabled beneficiaries to switch from public to private plans. Compared to the public program, which used blunt rationing to control costs, we find privatization led to improvements in healthcare including increased consumption of high-value drug treatments and fewer avoidable hospitalizations but also higher Medicaid spending. We conclude that private provision can be beneficial when constraints in the public setting limit efficiency.
Conditionally Accepted, American Economic Journal: Economic Policy
NBER Working Paper 26042
NBER Disability Research Center Paper NB 18-13
Summary in the NBER Bulletin on Retirement and Disability
Summary in the Brookings Hutchins Roundup
Summary on CEPR Vox
Cato Institute Research Briefs in Economic Policy No. 203