Abstract:

 Medicaid spends 40\% of its total spending on disabled beneficiaries, a sum that amounts to 6\% of the U.S. national health expenditure. Over the last two decades, states have shifted the provision of Medicaid to the disabled from their public fee-for-service system to private managed care plans. To study such transitions, we use an administrative database to identify county-level mandates that lead to a sharp increase in managed care enrollment. We exploit these mandates as an instrument for individuals' enrollment in managed care plans. We find that a transition to managed care eventually increases Medicaid's fiscal spending. Although spending mostly doesn't change at the first year after the transition, it increases by 0.5\% to 30\% of the baseline mean in the years after that, compared to the public program. Our results suggest that spending tends to increase more in states that have lower pre-mandate payment rates to providers.