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

Timothy J. Layton, Eran Politzer

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number105417
JournalJournal of Public Economics
Volume247
DOIs
StatePublished - Jul 2025

Keywords

  • Disabled
  • Medicaid
  • Medicaid managed care
  • Outsourcing

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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