Working Paper: NBER ID: w26042
Authors: Timothy J. Layton; Nicole Maestas; Daniel Prinz; Boris Vabson
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.
Keywords: Medicaid; Privatization; Healthcare Spending; Disabled Beneficiaries
JEL Codes: H51; H53; H75; I13; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicaid privatization (I18) | increase in outpatient medical spending (H51) |
| Medicaid privatization (I18) | increase in prescription drug utilization (H51) |
| Medicaid privatization (I18) | decrease in avoidable hospitalizations (I14) |
| Medicaid privatization (I18) | decrease in inpatient spending (H51) |
| increase in outpatient medical spending (H51) | increase in healthcare utilization (I11) |
| Medicaid privatization (I18) | improvements in healthcare quality (I19) |