Private vs. Public Provision of Social Insurance: Evidence from Medicaid

Timothy J. Layton, Nicole Maestas, Daniel Prinz, Boris Vabson

NBER Working Paper No. 26042
Issued in July 2019
NBER Program(s):Economics of Aging, Health Care

Public health insurance benefits in the U.S. are increasingly provided by private firms, despite mixed evidence on welfare effects. We investigate the impact of privatization in Medicaid by exploiting the staggered introduction of county-level mandates in Texas that required disabled beneficiaries to switch from public to private plans. Compared to the public program, which used blunt rationing to control costs, we find privatization led to improvements in healthcare—including increased consumption of high-value drug treatments and fewer avoidable hospitalizations—but also higher Medicaid spending. We conclude that private provision can be beneficial when constraints in the public setting limit efficiency.

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w26042