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Costs and Benefits of In-Kind Transfers: The Case of Medicaid Home Care Benefits

  • Ethan M.J. Lieber

    (University of Chicago)

  • Lee M. Lockwood

    (Northwestern University)

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    Many large government programs provide benefits in kind as opposed to in cash. Providing benefits in kind potentially distorts decisions and leads to a deadweight loss if recipients value the benefits less than a cost-equivalent cash transfer. Yet providing benefits in kind may have some offsetting benefits, especially in terms of improving the targeting of benefits to desired beneficiaries. We complete what is to our knowledge one of the first empirical studies of the costs and benefits of providing transfers in kind as opposed to in cash. We focus on the case of the US Medicaid program's provision of in kind home health care benefits. Three state Medicaid programs completed randomized experiments that converted the usual in-kind benefits into cash benefits for a randomly-selected subset of benefit recipients. We use the results of these experiments together with a variety of other evidence to estimate the costs and benefits of providing Medicaid home care benefits in kind. We find that in the case of Medicaid home care benefits, both the costs and benefits of providing transfers in kind as opposed to in cash are large. This suggests that alternative targeting mechanisms, if available, have the potential to significantly increase efficiency relative to traditional Medicaid policy.

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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp294.pdf
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    Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp294.

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    Length: 45 pages
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:mrr:papers:wp294
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    Web page: http://www.mrrc.isr.umich.edu/publications/papers/
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    1. Janet Currie & Firouz Gahvari, 2008. "Transfers in Cash and In-Kind: Theory Meets the Data," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 333-83, June.
    2. Hilary W. Hoynes & Diane Whitmore Schanzenbach & Douglas Almond, 2012. "Long Run Impacts of Childhood Access to the Safety Net," NBER Working Papers 18535, National Bureau of Economic Research, Inc.
    3. Hilary W. Hoynes & Diane Schanzenbach, 2007. "Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program," NBER Working Papers 13025, National Bureau of Economic Research, Inc.
    4. Munro, Alistair, 1992. "Self-Selection and Optimal In-Sind Transfers," Economic Journal, Royal Economic Society, vol. 102(414), pages 1184-96, September.
    5. Jesse Cunha, 2010. "Testing Paternalism: Cash vs. In-kind Transfer in Rural Mexico," Discussion Papers 09-021, Stanford Institute for Economic Policy Research.
    6. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-77, May.
    7. Neil Bruce & Michael Waldman, 1988. "Transfers in Kind: Why They Can Be Efficient and Non-Paternalistic," UCLA Economics Working Papers 532, UCLA Department of Economics.
    8. Baird, Sarah & Mcintosh, Craig & Ozler, Berk, 2010. "Cash or condition ? evidence from a cash transfer experiment," Policy Research Working Paper Series 5259, The World Bank.
    9. Henrik Jacobsen Kleven & Claus Thustrup Kreiner, 2003. "The Marginal Cost of Public Funds in OECD Countries. Hours of Work Versus Labor Force Participation," CESifo Working Paper Series 935, CESifo Group Munich.
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