The dynamic fiscal costs of outsourcing health insurance - evidence from Medicaid

Timothy J. Layton and Eran Politzer

Journal of Public Economics, 2025, vol. 247, issue C

Abstract: We study the dynamics of fiscal costs following the outsourcing of Medicaid provision to private health insurers by states. We focus on beneficiaries with disabilities who account for a third of Medicaid’s spending. Using a national administrative database, we identify county-level private plan enrollment mandates and exploit them as an instrument for individuals’ transition to managed care plans. These transitions, while initially slightly reducing fiscal costs, lead to a continuous increase in Medicaid’s costs over subsequent years. Counties subject to mandates experience a 9.8 % higher cost 4 years post-mandate compared to those without mandates. “Actuarially sound" endogenous payment rates, that are based on past costs in the market, may serve as a mechanism underlying the rising spending.

Keywords: Outsourcing; Medicaid; Medicaid managed care; Disabled (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:247:y:2025:i:c:s004727272500115x

DOI: 10.1016/j.jpubeco.2025.105417

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