Medicaid isn’t worth its cost–that’s not my evaluation that’s what people who use the program think, at least as far as we can tell from their actions. Joshua D. Gottlieb and Mark Shepard review the evidence at Econofact, which aims to be a dispassionate and non-partisan review of the evidence on a variety of issues. We have also covered these issues before but seeing it all together is valuable.
The cost is large:
The Medicaid program cost about $532 billion in 2015 to cover 74 million people, or almost one in four Americans. The average full-benefit enrollee cost about $6,400 per year to cover in 2014.
People with access to the program use a lot more healthcare than other similar people
The Oregon Experiment found that gaining Medicaid uniformly increased health care use: including hospitalizations (by 30 percent), emergency room use (by 40 percent), physician office visits (by 50 percent), and prescription drugs (by 15 percent). This evidence stands in contrast to the conventional wisdom that providing health insurance could reduce costs by eliminating ER visits. Of course, understanding whether this additional care is worth it requires a comparison of these real costs to the benefits provided.
The health benefits appear to be real but modest:
The evidence is mixed on whether having Medicaid improves beneficiaries’ health. The Oregon Experiment did not find statistically significant evidence of improvements in physical health measures, such as blood pressure and blood sugar after two years of coverage. But it did find large improvements in mental health and self-reported health. Other studies examining the introduction of Medicaid or its expansion over time have found that Medicaid reduces mortality (of infants during the expansion of Medicaid eligibility for low-income children between 1984-1992; of adults during the expansion of Medicaid coverage for childless adults in Arizona, Maine and New York between 2000-2005; of teenagers who benefited from expansions of Medicaid to children during the early 1980s; and of infants and children in the 1960s and 1970s following the introduction of Medicaid) and improves health later in life (for instance among teenagers who benefited from the expansion of coverage as children). But these studies lack the gold-standard randomized design of the Oregon Experiment so should be interpreted with greater caution.
Health benefits may not be the most important benefits:
One important role for Medicaid is to provide risk protection, shielding enrollees from the financial impact of particularly adverse health events, which is the most fundamental role of an insurance product. Researchers seem to agree that access to Medicaid does improve financial security.
So how does one evaluate the tradeoffs? One way is to look at how users value the program.
Recent evidence indicates that beneficiaries value Medicaid at less than its full cost. One source of evidence comes from Massachusetts’ low-income health insurance exchange, where researchers could observe how much charging higher premiums for Medicaid-like coverage led enrollees to drop out: at least 70 percent of enrollees valued insurance at less than their own cost of coverage. A second source of evidence used economic models to quantify how much beneficiaries valued the benefits of Medicaid in the Oregon Experiment. In this case, the researchers found that beneficiaries valued Medicaid at about one-fifth of its cost.
Benefits are valued at only one-fifth the cost! Why so low?
The literature suggests two explanations. First, Medicaid provides less complete choice of doctors and hospitals than other insurance, partly because of its low reimbursement rates (see this article for instance). Second, many of the benefits of Medicaid go to medical providers who would otherwise provide uncompensated or unpaid care to the same people.
The authors don’t mention this but if users don’t value the program highly because they would have gotten similar care for free in some other way, then the cost of Medicaid isn’t as high as it appears, because much of it is a transfer from taxpayers to medical providers or others who might otherwise foot the bill. Nevertheless we would probably design Medicaid very differently if we thought about it as (another) subsidy to medical providers rather than as a subsidy to the poor and sick.
It doesn’t follow from anything that has been said that Medicaid should be eliminated or even cut back (let alone that current efforts are the best way to do this). Nevertheless, if I told you that Program X costs $5 for every $1 in value transferred to recipients you would probably agree that Program X was in need of reform.
Addendum: Aaron Carroll and Austin Frakt offer a more optimistic review of the health evidence.