Medicaid Benefits Others More Than Patients


Why do so many push for Medicaid expansion despite its reputation for inferior healthcare? The answer may have been found in a new study.

Amy Finkelstein (MIT), Nathaniel Hendren (Harvard), and Erzo F. P. Luttner (Dartmouth) released more findings this month from the Oregon Health Insurance Experiment, an ongoing study of Medicaid begun in 2008. This study began as a result of the need for the State of Oregon to expand Medicaid eligibility with insufficient funds to cover all those eligible. Therefore, they had a lottery, awarding Medicaid to approximately 35,000 Oregonians out of the eligible pool of 75,000. This created an ideal situation to examine the impact of Medicaid on these two similar patient pools.

This experiment has already yielded useful information including the finding that having Medicaid had no measurable impact on their health outcomes. Those with Medicaid had similar outcomes to the uninsured when measuring such standard metrics as blood pressure and blood sugar control. Furthermore, those with Medicaid were found to use emergency rooms 40 percent more often than the uninsured.

Interestingly, 40 percent of those offered Medicaid didn’t bother to enroll. This is consistent with national data (pre-ObamaCare) that showed one third of those eligible for Medicaid were not enrolled.

New Study Findings

The authors of this study now tell us that Medicaid enrollees receive very little benefit from each dollar spent on Medicaid. They calculate the value from a minimum of 15 cents on the dollar to an average somewhere between 20 and 40 cents. The maximum is 90 cents on the dollar, still leaving Medicaid costs higher than the benefit to enrollees. In fact, if you offered the average enrollee a little more than 20 cents on the dollar, they would take the cash.

Economist John C. Goodman helps explain these findings. He says the uninsured are not really uninsured. They have insurance “implicitly.” When they get medical care they don’t pay the full price. In fact they pay about 20 percent of the cost of care. It’s like they have an insurance policy with a 20 percent copayment.

Further data from the Oregon study reveals that those who remain uninsured spent about $2,700 per person each year on healthcare. Those newly enrolled in Medicaid spent about $3,600 or about $900 more. Goodman explains this is consistent with economic theory. When $1 of care becomes free instead of costing 20 cents, people obtain more of it. But the value of this additional care is likely to be less than 20 cents on the dollar.

The Real Story

More important than these findings, however, is the rest of the story. If the uninsured are paying only 20 percent of the cost of their care, somebody else must be paying the other 80 percent. The study revealed that 60 cents of every dollar benefitted “somebody elses.” These are unidentified except as they are referred to as “providers of the implicit insurance.” Non-enrollees were getting more out of Medicaid than those who were enrolled.

Unfortunately, the study has not yet revealed who the beneficiaries of that 60 cents were. At this point we can only speculate. But we can conclude that these unidentified, non-poor people are getting three times the benefit from Medicaid as those enrolled in the program. Could it be that these are the same people who are pushing hard to expand Medicaid?



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