Harold Pollack, Timothy Jost, and I have a piece in The American Prospect about why we need Medicaid and how we should improve it.
We discuss an important NBER paper by Amy Finkelstein and her colleagues that tried to measure how much Medicaid is worth to those who receive it. The authors used data from the Oregon Health Insurance Experiment. The headline findings were that
- Uninsured people who get Medicaid only gained from 20 to 40 cents in value from each dollar spent by the government.
- A principal reason why the benefit of getting insured was so small is that when uninsured people received care, they typically paid only 20 cents on the dollar for those services. Safety-net providers, state or local government, friends, relatives, or someone else absorbed the remaining costs.
- Because a large fraction of Medicaid expenditures financed care that recipients would have received anyway (for example, by leaving bad debt at hospitals), it is unclear whether recipients themselves would have been willing to pay the full costs of Medicaid.
Finkelstein and her colleagues were careful not to draw normative conclusions from these findings. But some Medicaid critics have argued, first, that Medicaid is an inefficient way to benefit the poor. If a Medicaid dollar results in only 20 cents in benefit to a previously uninsured person, wouldn’t it be more efficient to simply give that person a dollar? And, second, Medicaid is actually a subsidy for people other than those it ostensibly helps.
We see matters differently. One important reason why the value of Medicaid appears to be so low is that Finkelstein put a much lower value on the health of Medicaid recipients than is typically used in valuations of the health of other Americans. We also argue that in many cases, we should not be troubled that Medicaid payments are going to third parties who are, after all, providing care to Medicaid recipients.
Please read the whole thing.