Only 20 to 40 Cents of Each Medicaid Dollar Benefits Recipients

One of the problems with Medicaid is that it does not appear to improve recipients’ health (although the evidence can be described as mixed). The best evidence on Medicaid comes from Oregon, which ran a lottery to allow eligible people to enroll. This approximates a randomized clinical trial, the gold standard of clinical research and hard to achieve when examining the real world. Plenty of research indicates that the Oregon Medicaid did not improve health outcomes very much.

The original researchers continue to publish results, and have written a paper that might offer the best explanation why Medicaid does so little. Only 20 to 40 cents of Medicaid spending actually goes towards patients’ welfare:

Our baseline estimates of Medicaid’s welfare benefit to recipients per dollar of government spending range from about $0.2 to $04, depending on the framework……

In addition, we estimate that Medicaid generates a substantial transfer, of about $0.6 per dollar of government spending to providers of implicit insurance for the low-income uninsured.

(A Finkelstein, N. Hendren, & E.F.P. Luttmer, “The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment,” NBER Working Paper, June 2015)

I would explain this by the fact that Medicaid spending is driven by providers (e.g. hospital lobbyists), not recipients. So, they resist letting politicians transfer income directly to beneficiaries. We see the same outcome in Obamacare and Medicare Advantage, where every penny of government payment goes to health insurers, not patients themselves.

Comments (6)

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  1. Bob Hertz says:

    John, I see a lot wrong with Medicaid, as you do, but I think that your headline rather twists the phrase “benefits recipients.”

    As I read this piece, I get the impression that if a Medicaid patient is hit by a car, goes into the hospital, and the hospital is paid $15,000, then the Medicaid patient does not “benefit” because he/she does not control the money themselves.

    If so, this seems to kind of violate common sense. I have sat in a couple of urban ER’s, and I saw Medicaid patients getting ‘benefits’ every day.

    I should go back to an old theme of mine. Medicaid patients are dirt poor in most states. They live in crummy housing, eat crummy food, and meet with abnormal levels of violence.

    Plus some Medicaid recipients are not the brightest bulbs on the tree, some are badly addicted — and so they do not maintain a therapeutic regime even if it is documented for them in plain English.

    For this reason, I pay little attention to the studies that show poor results for Medicaid patients.

    • Perry says:

      While Medicaid reimbursement went up a tiny notch in the 2 years from 2012-2014, those rates have gone back down. When added to the fact that many (not all) Medicaid patients can be very frustrating to deal with and the additional paperwork, it’s very difficult for physicians to continue having much Medicaid in their practice.
      This makes Medicaid expansion pretty meaningless.

    • Not quite. But the paper is very technical and difficult to communicate. I would state that the money spent by the hospital on charity care benefits the patient. However, when we put the patient on Medicaid in order primarily to pay the hospital for its (no longer) charity care, the extra money does not do much for the patient.

  2. Bob Hertz says:

    John Goodman’s book Priceless had the ideal replacement for Medicaid in terms of doctor visits —

    namely, health care stamps (not unlike food stamps).

    The patient could add to the stamp value to see a doctor more of their choice.

    I think we would still need traditional Medicaid for hospital care.

  3. Jimbino says:

    If the patients got the Medicaid funds instead of the healthcare providers, the danger is that they might well seek better and cheaper care in Cuba, Mexico, Costa Rica, Brazil or Argentina, depriving the domestic healthcare providers their illicit lion’s share of the healthcare dollar they so lavishly spent to obtain.

  4. Bob Hertz says:

    Jimbino, you are right in general but wrong on the particulars. Medicaid recipients making $11,000 a year are not going to take many trips to Cuba for cheaper care.