Creative Financing and Public Moral Hazard: Evidence from Medicaid and the Nursing Home Industry

Martin B. Hackmann, Juan S. Rojas and Nicolas Ziebarth

No 34118, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Medicaid finances U.S. nursing home care through federal matching grants that reward verifiable volume, not quality. We show that states exploit this through creative financing, diverting funds earmarked for nursing homes. This turns the federal match into a pure volume subsidy and generates a novel allocative distortion we term public moral hazard. We develop the mechanism theoretically and test its predictions using 24 federal audits and administrative microdata from Indiana. Event studies show Medicaid dementia volume rises 12%; structural quality estimates show the expansion concentrates in the lowest-quality facilities, reallocating patients toward worse providers and reducing one-year survival.

JEL-codes: H51 H75 I11 I13 I18 J14 (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-hea
Note: AG EH PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34118.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34118

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34118
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().