Nav: Home

New health insurance insights

December 16, 2019

A new analysis of a randomized health insurance program in Oregon sheds light on the value the program has for enrollees and providers alike.

The study, by MIT economist Amy Finkelstein and two co-authors, suggests that adults with low incomes value Medicaid at only about 20 cents to 50 cents per dollar of medical spending paid on their behalf.

"The value of Medicaid for most low-income adults is much lower than the medical expenditures paid by the insurance," says Finkelstein, the John and Jennie S. MacDonald Professor at MIT and a leading health care economist.

That finding reinforces the results of another, separate study that Finkelstein and multiple co-authors conducted in Massachusetts. In that case, across 70 percent of people in the Massachusetts state health insurance program for low-income adults, their valuation of the program was equal to less than 50 percent of their expected insurance costs.

While it might seem puzzling that recipients value health insurance at less than the covered medical expenditures, the study also offers an explanation for this: Low-income individuals who do not have insurance still only pay a fraction of their medical costs. In the Oregon data, this figure was roughly 20 percent of medical costs; prior studies have found similar results nationwide. The remainder of the spending on the low-income uninsured comes from a variety of sources, including charity care from nonprofit hospitals, publicly funded health clinics that offer free care, state funding to hospitals for uncompensated care, and unpaid medical debt.

"The nominally uninsured have a fair amount of implicit insurance," Finkelstein says. "Once you put it in that light, it becomes a lot less surprising that Medicaid spending is valued by them at a lot less than dollar for dollar."

One further implication of the findings is that a significant portion of public spending on health insurance for low-income individuals effectively acts as a subsidy for health care providers and state programs that cover the costs of uninsured patients.

The new paper, "The Value of Medicaid: Interpreting Results from the Oregon Health Experiment," appears in the December issue of the Journal of Political Economy. Its co-authors are Finkelstein; Nathan Hendren PhD '12, a professor of economics at Harvard University; and Erzo F.P. Luttmer, a professor of economics at Dartmouth College.

The previous paper, "Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts," was published last spring in the American Economic Review. Its co-authors are Finkelstein; Hendren; and Mark Shepard, an assistant professor at the Harvard Kennedy School of Government.

A random walk in Oregon

The latest paper examines a distinctive Medicaid policy that Oregon implemented in 2008. With funding to cover only about 10,000 of eligible adults, Oregon conducted a lottery to decide who would be eligible to apply for Medicaid.

That random assigment of slots using a lottery allowed the researchers to develop a study comparing two otherwise similar groups of Oregon residents: those who had obtained Medicaid coverage via lottery and those who entered the lottery but did not gain coverage. In effect, Oregon had developed a randomized controlled trial, which the scholars used for their research.

Medicaid eligibility regulations and administrative practices can vary by state. In Oregon, adults and children generally qualify for Medicaid when they live in a household with income no greater than 133 percent of the poverty level defined by the U.S. federal government; in 2016, in the 48 contiguous states, that was $11,800 for a single person and $24,300 for a family of four.

Previous studies of the Oregon experiment that Finkelstein has led have shown that, among other things, emergency room use increases among Medicaid recipients, contrary to expectations of many experts.

Being covered by Medicaid also increases patient visits to doctors, prescription drug use, and hospital admissions, while reducing out-of-pocket medical expenses and lowering unpaid medical debt for recipients. Medicaid coverage also appears to lower the incidence of depression, although it does not seem to change the available measures of physical health.

The current study uses data from the prior Oregon studies, as well as state Medicaid records, and survey data from individuals who applied for Oregon's lottery. The survey data show how much people used health care, including prescription drugs, outpatient visits, emergency-room visits, and hospital visits.

In line with previous studies, the current paper shows that having Medicaid increases total spending on health care -- about $3,600 reimbursed to providers annually on behalf of each Medicaid enrollee, compared to $2,721 annually for each low-income uninsured individual. Of that $2,721, the low-income uninsured paid about $569 in annual out-of-pocket costs -- the source of the paper's estimate that uninsured individuals pay about 20 percent of charged costs.

Using this data, the researchers also estimated an annual net cost of Medicaid in Oregon of $1,448 per recipient. This is the average annual increase in health care spending by Medicaid recipients, plus their average annual decrease in out-of-pocket spending. Thus moving a low-income uninsured individual in Oregon onto Medicaid results in a $1,448 increase in insured health care spending on behalf of that person.

Because the Oregon Medicaid program's reimbursements to health care providers are an average of $3,600 annually per recipient, the researchers estimate that about 40 percent of Medicaid spending underwrites costs incurred by enrollees. The other 60 percent is, as they write in the paper, "best conceived of as ... a monetary transfer to external parties who would otherwise subsidize the medical care for the low-income uninsured."

Simultaneously, the researchers refined their "willingness to pay" metric by using multiple methods to estimate how much having health insurance affects consumer spending generally. These methods yielded three estimates ranging from $793 to $1,675 in annual health care spending for low-income individuals. This is the source of the paper's conclusion that people value Medicaid at 20 percent to 50 percent of charged costs.

Two approaches, similar results

Significantly, the two studies use different methodological approaches to study different programs in different states, and arrive at similar conclusions. In Massachusetts, the scholars used data from the state's health insurance program -- a forerunner of the federal Affordable Care Act -- to see how the share of eligible individuals who signed up for insurance changed as their subsidy level changed.

"Despite a different design and different setting, even though it's Massachusetts and not Oregon, and different method, we got pretty much the same result," Finkelstein observes.

Overall, Finkelstein says, it will be valuable to keep learning about the care obtained by uninsured people, as well as the ultimate destination of Medicaid funding, including the 60 percent that is routed to other parties that subsidize care for the low-income uninsured. Understanding who ultimately gets those transfers, she notes, could help illuminate how redistributive Medicaid actually is, as a program intended to benefit lower-income Americans.

Moreover, Finkelstein says, more research will be needed to study how best to provide health care for lower-income Americans.

"Right now we have an implicit, informal insurance system that likely reduces demand for formal insurance but provides a sort of patchwork of care that may not be very good," Finkelstein says.
-end-
Funding for the two studies was provided by the National Institute of Aging, the National Science Foundation, and the Harvard University Lab for Economic Applications and Policy.

Paper: "The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment" https://www.journals.uchicago.edu/doi/abs/10.1086/702238

Paper: "Subsidizing Health Insurance for Low-Income Adults: Evidence from Massachusetts" https://www.aeaweb.org/articles?id=10.1257/aer.20171455&within%5Bauthor%5D=on&journal=1&q=finkelstein&from=j

Massachusetts Institute of Technology

Related Health Care Articles:

Mental health of health care workers in china in hospitals with patients with COVID-19
This survey study of almost 1,300 health care workers in China at 34 hospitals equipped with fever clinics or wards for patients with COVID-19 reports on their mental health outcomes, including symptoms of depression, anxiety, insomnia and distress.
Large federal program aimed at providing better health care underfunds primary care
Despite a mandate to help patients make better-informed health care decisions, a ten-year research program established under the Affordable Care Act has funded a relatively small number of studies that examine primary care, the setting where the majority of patients in the US receive treatment.
International medical graduates care for Medicare patients with greater health care needs
A study by a Massachusetts General Hospital research team indicates that internal medicine physicians who are graduates of medical schools outside the US care for Medicare patients with more complex medical needs than those cared for by graduates of American medical schools.
The Lancet Global Health: Improved access to care not sufficient to improve health, as epidemic of poor quality care revealed
Of the 8.6 million deaths from conditions treatable by health care, poor-quality care is responsible for an estimated 5 million deaths per year -- more than deaths due to insufficient access to care (3.6 million) .
Under Affordable Care Act, Americans have had more preventive care for heart health
By reducing out-of-pocket costs for preventive treatment, the Affordable Care Act appears to have encouraged more people to have health screenings related to their cardiovascular health.
High-deductible health care plans curb both cost and usage, including preventive care
A team of researchers based at IUPUI has conducted the first systematic review of studies examining the relationship between high-deductible health care plans and the use of health care services.
Health insurance changes, access to care by patients' mental health status
A research letter published by JAMA Psychiatry examined access to care before the Patient Protection and Affordable Care Act (ACA) and after the ACA for patients grouped by mental health status using a scale to assess mental illness in epidemiologic studies.
Medical expenditures rise in most categories except primary care physicians and home health care
This article was published in the July/August 2017 issue of Annals of Family Medicine research journal.
Care management program reduced health care costs in Partners Pioneer ACO
Pesearchers at Partners HealthCare published a study showing that Partners Pioneer ACO not only reduces spending growth, but does this by reducing avoidable hospitalizations for patients with elevated but modifiable risks.
Health care leaders predict patients will lose under President Trump's health care plans
According to a newly released NEJM Catalyst Insights Report, health care executives and industry insiders expect patients -- more than any other stakeholder -- to be the big losers of any comprehensive health care plan from the Trump administration.
More Health Care News and Health Care Current Events

Trending Science News

Current Coronavirus (COVID-19) News

Top Science Podcasts

We have hand picked the top science podcasts of 2020.
Now Playing: TED Radio Hour

Climate Mindset
In the past few months, human beings have come together to fight a global threat. This hour, TED speakers explore how our response can be the catalyst to fight another global crisis: climate change. Guests include political strategist Tom Rivett-Carnac, diplomat Christiana Figueres, climate justice activist Xiye Bastida, and writer, illustrator, and artist Oliver Jeffers.
Now Playing: Science for the People

#562 Superbug to Bedside
By now we're all good and scared about antibiotic resistance, one of the many things coming to get us all. But there's good news, sort of. News antibiotics are coming out! How do they get tested? What does that kind of a trial look like and how does it happen? Host Bethany Brookeshire talks with Matt McCarthy, author of "Superbugs: The Race to Stop an Epidemic", about the ins and outs of testing a new antibiotic in the hospital.
Now Playing: Radiolab

Speedy Beet
There are few musical moments more well-worn than the first four notes of Beethoven's Fifth Symphony. But in this short, we find out that Beethoven might have made a last-ditch effort to keep his music from ever feeling familiar, to keep pushing his listeners to a kind of psychological limit. Big thanks to our Brooklyn Philharmonic musicians: Deborah Buck and Suzy Perelman on violin, Arash Amini on cello, and Ah Ling Neu on viola. And check out The First Four Notes, Matthew Guerrieri's book on Beethoven's Fifth. Support Radiolab today at Radiolab.org/donate.