Medicaid Expansion and Money Squandering

One area in which economics definitely stands out among social sciences is in deriving social value in proposed policies.

An important point is in health care financing.

An important thing to remember: health insurance is not health care, and access to insurance or access to a hospital do not equate to receiving care or receiving the individual or social benefits of care.

One of the biggest promises made by the Affordable Care Act is the expansion of Medicaid across federal programs and with extra funding falling to states to expand their own programs. Governors who have opted out of this expansion are considered foolish in the press since the money is coming from the federal government (get people from other states to pay for it!). The Congressional Budget Office puts the value of Medicaid that makes it into the hands of recipients at the cost to the government ($1/$1 spent on the program).

But recent research from the sharp Amy Finkelstein (winner of the lauded John Bates Clark medal) and others casts doubt upon the social and personal value of the money earmarked for Medicaid expansion.

Even in the abstract, we have reason to be a bit disheartened by the results.

“Our baseline estimates of the welfare benefit to recipients from Medicaid per dollar of government spending range from about $0.2 to $0.4, depending on the framework…we estimate that Medicaid generates a substantial transfer, of about $0.6 per dollar of government spending, to the providers of implicit insurance for the low-income uninsured…The ultimate economic incidence of these transfers is critical for assessing the social value of providing Medicaid to low-income adults relative to alternative redistributive policies.”

Some commentators talk about low minimum wages as “subsidizing” people who employ low-skilled workers, or that EITC somehow subsidizes low wages. This is an example of subsidies for companies, nonprofits, and government agencies to simply be in the business of low-income medical insurance.

Whenever we have a policy that distributes services or benefits to a group, we should be asking ourselves this question: how much better is this than just giving cash?

With Medicaid expansions in the ACA, we may be better off simply expanding EITC, giving cash, or even vouchers (cash equivalents for insurance).


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