Abstract:

Public health insurance benefits in the U.S. are increasingly provided by private firms. We assess the consequences of private provision by exploiting the staggered introduction of enrollment mandates across counties in Texas and New York, which required disabled Medicaid beneficiaries to shift to private health plans. In Texas, where the public program uses strict rationing to control costs, privatization led to higher Medicaid spending but also improvements in healthcare. In New York, where the public program is more generous, privatization did not affect Medicaid spending but resulted in a large decrease in inpatient admissions. We conclude that the consequences of private provision depend critically on the design of the public and private programs.