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Affordability of the Affordable Care Act's Medicaid Expansion: Implications for Household and Public Finances
Affordability of the Affordable Care Act's Medicaid Expansion: Implications for Household and Public Finances
Tuesday, June 25, 2019
Exhibit Hall C (Marriott Wardman Park Hotel)
This paper investigates the short-run impact of Medicaid expansion under the Patient Protection and Affordable Care Act (ACA) on out-of-pocket medical spending (OOP) and consumption of low-income households. Using the restricted geocodes from the Medical Expenditures Panel Survey (MEPS), I measure exposure to the reform according to eligibility rules. I then apply a DD(D) identification strategy combined with a simulated instrument to exploit the exogenous variation in eligibility rules across regions, income groups and time.
The main contribution of this paper is that it causally identifies and quantifies the cost savings to Medicaid-eligible households as well as the cost-shifting from beneficiaries to other taxpayers. To my knowledge, it presents the first analysis of the impact of the ACA public insurance expansion on medical spending and consumption that uses individual-level data to define eligibility status for Medicaid, private insurance subsidies and individual mandate penalties for each household. This focus allows for the interpretation of effects as an intention to treat (ITT), which is the parameter of interest for the policy-maker, who can offer eligibility, but not receipt of health insurance. In addition to the effect on mean reductions in OOP, the paper provides the first analysis of the impact on risk exposure to high out-of-pocket medical payments. Finally, it contributes to the debate on the value of in-kind benefits, which has been growing in fiscal importance in recent decades.
I find that the ACA Medicaid expansion reduced household out-of-pocket expenditures for medical services and products by 8.8% (among households with positive expenditures) and for insurance premia by 12.0%, for each standard deviation increase in Medicaid eligibility. Quantile regressions reveal that mean improvements in affordability for low-income households are driven by reductions in large OOP payments in the upper percentiles of the OOP distribution and by households with at least one pre-existing condition. Medicaid expansion moreover moderately protects households from the risk of high-cost payments: the risk analysis estimates an economically negligible value of risk protection at the mean ($12), but that amounts to $310 annually in the 99th percentile of expected OOP medical expenditures. Despite reductions in OOP expenditures among households that would become eligible for the ACA Medicaid expansion, total expenditures paid on their behalf increased. Reductions in the share of total medical expenditures paid by private insurance (4.6%) and OOP (7.2%) were compensated by a 10.9% increase in the share paid by the taxpayer through public insurance. Despite improvements in affordability for low-income families, the analysis does not detect substantial improvements with respect to access to urgent care or utilization of preventive care services.
The main contribution of this paper is that it causally identifies and quantifies the cost savings to Medicaid-eligible households as well as the cost-shifting from beneficiaries to other taxpayers. To my knowledge, it presents the first analysis of the impact of the ACA public insurance expansion on medical spending and consumption that uses individual-level data to define eligibility status for Medicaid, private insurance subsidies and individual mandate penalties for each household. This focus allows for the interpretation of effects as an intention to treat (ITT), which is the parameter of interest for the policy-maker, who can offer eligibility, but not receipt of health insurance. In addition to the effect on mean reductions in OOP, the paper provides the first analysis of the impact on risk exposure to high out-of-pocket medical payments. Finally, it contributes to the debate on the value of in-kind benefits, which has been growing in fiscal importance in recent decades.
I find that the ACA Medicaid expansion reduced household out-of-pocket expenditures for medical services and products by 8.8% (among households with positive expenditures) and for insurance premia by 12.0%, for each standard deviation increase in Medicaid eligibility. Quantile regressions reveal that mean improvements in affordability for low-income households are driven by reductions in large OOP payments in the upper percentiles of the OOP distribution and by households with at least one pre-existing condition. Medicaid expansion moreover moderately protects households from the risk of high-cost payments: the risk analysis estimates an economically negligible value of risk protection at the mean ($12), but that amounts to $310 annually in the 99th percentile of expected OOP medical expenditures. Despite reductions in OOP expenditures among households that would become eligible for the ACA Medicaid expansion, total expenditures paid on their behalf increased. Reductions in the share of total medical expenditures paid by private insurance (4.6%) and OOP (7.2%) were compensated by a 10.9% increase in the share paid by the taxpayer through public insurance. Despite improvements in affordability for low-income families, the analysis does not detect substantial improvements with respect to access to urgent care or utilization of preventive care services.
