The Impact of Private Contracting on Health Care for the Disabled: Evidence from California’s Medicaid Program

While Medicaid historically relied on a fee-for-service system administered by government agencies, the combination of rising costs and an overall trend towards the privatization of government services resulted in state governments increasingly contracting with private firms to operate a managed care version of Medicaid (MMC) for beneficiaries, including more complicated and costly patients that were intentionally carved out of the initial expansions. In this paper we attempt to provide evidence regarding the effects of these expansions by examining a policy change in Medi-Cal (the Medicaid program in California) which mandates SPD Medicaid beneficiaries to enroll in Medicaid Managed Care in a selection of counties where they previously could voluntarily choose whether or not to enroll in MMC. Our main empirical strategy is to exploit the fact that the policy change was implemented according to the birth month of beneficiaries from June 2011 through May 2012. Our main source of data is the administrative records of all inpatient hospital discharges and ER visits in California from 2009 through 2014. Overall, moving the SPD population from FFS to MMC appears to have caused a clear momentary disruption in access to care that manifests itself in a transitory increase in use of the emergency room. For the entire SPD population, we also find a transitory increase in inpatient visits that are non-ER transfer from another hospital and a more persistent decline in visits that are non-ER and non-transfer. To examine heterogeneity, we looked at individuals who were heavy utilizers of healthcare services prior to the reform and those with particular medical conditions. Overall, we found that temporary increase in the number of outpatient ER visits was driven by individuals who had 3 or more ER visits prior to the reform. In contrast, for those who were infrequent utilizers of medical services the movement into MMC caused a longer lasting decrease in the number of non-ER non-transfer hospital visits. This suggests a potential role for MMC in reducing the use of inpatient services for those who are healthier. Looking at individuals by the type of medical condition they have, we find the most persistent impacts of MMC on the use of care. For both individuals that have a nervous system condition (e.g. epilepsy) or a circulatory condition (e.g. congestive heart failure), the movement to MMC causes an increase in the number of inpatient discharges. In particular, there is an increase in inpatient discharges that began with a visit to the hospital's ER and were not scheduled, which persists over one year after the movement into MMC.