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

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  • Layton, Timothy J.
  • Politzer, Eran

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.

Suggested Citation

  • Layton, Timothy J. & Politzer, Eran, 2025. "The dynamic fiscal costs of outsourcing health insurance - evidence from Medicaid," Journal of Public Economics, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:pubeco:v:247:y:2025:i:c:s004727272500115x
    DOI: 10.1016/j.jpubeco.2025.105417
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