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Public Health Insurance Expansions and Hospital Technology Adoption

  • Seth Freedman

    (Indiana University)

  • Haizhen Lin

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Kosali Simon

    (Indiana University and NBER)

This paper explores the effects of public health insurance expansions on hospitals’ decisions to adopt medical technology. Specifically, we test whether the expansion of Medicaid eligibility for pregnant women during the 1980s and 1990s affected hospitals’ decisions to adopt neonatal intensive care units (NICUs). While the Medicaid expansion insured a substantial number of pregnant women who would otherwise have been uninsured, prior literature also finds that some newly insured women would otherwise have been covered by more generously-reimbursed private sources. This leads to a theoretically ambiguous net effect of Medicaid expansion on a hospital’s incentive to invest in technology. Using American Hospital Association (AHA) data, we find that on average Medicaid expansions had no statistically significant effect on NICU adoption. However, we find that in geographic areas where more of the newly Medicaid-insured may have come from the privately insured population, Medicaid expansion slowed NICU adoption. This holds true particularly when Medicaid payment rates were very low relative to private payment rates. Our findings suggest that despite the fact that on average Medicaid expansions did not affect the proliferation of NICUs in the 1980s and 1990s, the Medicaid-induced shifts from private to public coverage slowed NICU adoption. This finding is consistent with prior evidence on reduced NICU adoption from increased managed care penetration. We conclude by providing suggestive evidence on the health impacts of this deceleration of NICU diffusion, and by discussing the policy implications of our work for insurance expansions associated with the Affordable Care Act.

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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2012-08.

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Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iuk:wpaper:2012-08
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