Does Contracting Out Increase the Efficiency of Government Programs? Evidence from Medicaid HMOs

Mark Duggan

No 9091, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: State governments contract with health maintenance organizations (HMOs) to coordinate medical care for nearly 20 million Medicaid recipients. Identifying the causal effect of HMO enrollment on government spending and health care quality is difficult if, as is often the case, recipients have the option to enroll in a plan. To estimate the average effect of HMO enrollment, this paper exploits county-level mandates introduced during the last several years in the state of California that required most Medicaid recipients to enroll in a managed care plan. The empirical results demonstrate that the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no observable improvement in health outcomes, thus apparently reducing the efficiency of this large government program. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.

JEL-codes: H51 H57 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-pbe
Note: EH PE
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Citations: View citations in EconPapers (3)

Published as Duggan, Mark. "Does Contracting Out Increase The Efficiency Of Government Programs? Evidence From Medicaid HMOs," Journal of Public Economics, 2004, v88(12,Dec), 2549-2572.

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