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Public Insurance and Investments in Health: Evidence from the Tennessee Medicaid Contraction
Moiz Bhai
University of Illinois at Chicago
Cristina Miller
Economic Research Service, USDA
Abstract
Fluctuations in the provision of public health insurance, such as Medicaid, can potentially impact an individual’s investments in health. Economic theory, unfortunately, provides ambiguous predictions. One the one hand, if substitution effects dominate, then public insurance will produce a reduction in health investments. On the other hand, if income effects dominate then public insurance will produce complementarities between public insurance and investments in health. In this paper, we examine how changes in the provision of public health insurance influence investments in health. Using the Behavioral Risk Factor Surveillance System data, we exploit variation in a natural experiment, the2005 Tennessee Medicaid disenrollment, to empirically assess the role of public health insurance and investments in health.
TennCare, which is Tennessee’s Medicaid program, has recently been cited one of the most controversial health insurance experiments in state health care reform. Originating in 1994, TennCare had two primary goals: to expand health insurance coverage to the uninsured and the uninsurable (individuals with pre-existing conditions), and avoid a potential health care budget crisis by initializing use of Managed Care Organizations (MCOs) to control the increasing Medicaid budget. TennCare was established as a two-pronged public health insurance program, with one prong, referred to as TennCare Medicaid, providing public health insurance for Medicaid eligible individuals, and the other prong, called TennCare Standard, providing public health insurance to the uninsured and uninsurable (those with pre-existing conditions) through subsidized care for individuals under 400 percent of the Federal Poverty Level (FPL) and unsubsidized care for individuals above 400 percent of the FPL. In 2005, almost 200,000 individuals in the TennCare Standard program were dropped from the health insurance coverage. In addition, there was a universal drop in covered medical services, a change in the definition of reimbursable services, as well as, a limit to the number of prescriptions and refills per enrollee. The massive disenrollment represents the largest single reduction in public health care coverage in the nation’s history.The individuals cut from TennCare Standard represent the sickest and most costly of all TennCare enrollees.
In this study, we employ a difference-in-difference research design to examine how changes in the provision of public health insurance influence investments in health. We examine the relationship between public health insurance and investments in health such as smoking, exercise, nutrition, and obesity. In addition, we compare the variation in this relationship in urban and rural areas. We find evidence that suggest complementarities between health insurance and health investments. We use the health as human capital framework to place a valuation on the health benefits.