Working Paper: NBER ID: w27762
Authors: Michael Geruso; Timothy J. Layton; Jacob Wallace
Abstract: Exploiting the random assignment of Medicaid beneficiaries to managed care plans, we find substantial plan-specific spending effects despite plans having identical cost sharing. Enrollment in the lowest-spending plan generates 30% lower spending—driven by differences in quantity—relative to enrollment in the highest-spending plan. Rather than reducing “wasteful” spending, lower-spending plans broadly reduce medical service provision—including the provision of low-cost, high-value care—and worsen beneficiary satisfaction and health. Consumer demand follows spending: a 10 percent increase in plan-specific spending is associated with a 40 percent increase in market share. These facts have implications for the government’s contracting problem and program cost growth.
Keywords: Medicaid; Managed Care; Healthcare Spending; Consumer Choice; Random Assignment
JEL Codes: H75; I11; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Enrollment in the lowest-spending Medicaid managed care plan (I18) | Healthcare spending (H51) |
| Enrollment in the highest-spending plan (I23) | Healthcare spending (H51) |
| Lower-spending plans (H51) | Probability of receiving any care in a given month (I11) |
| 10% increase in plan-specific spending (H51) | Market share (D33) |
| Lower-spending plans (H51) | Probability of avoidable hospitalizations (I14) |