Does Public Insurance Improve the Efficiency of Medical Care? Medicaid Expansions and Child Hospitalizations

One of the benefits commonly claimed for expanded public health insurance is improved efficiency of medical care delivery, but this claim has little rigorous empirical support. We provide such support by assessing the impact of the Medicaid expansions over the 1983-1996 period on the incidence of avoidable hospitalizations. We find that expanded public insurance eligibility leads to a significant decline in avoidable hospitalization: over this period Medicaid eligibility expansions were associated with a 22% decline in avoidable hospitalization. But we also find that there is a countervailing and larger impact in terms of increased access to hospital care for newly eligible children, so that there is an overall 10% rise in child hospitalizations due to the expansions. The expansions have mixed implications for treatment intensity, but appear to be associated with a significant shift in the types of hospitals at which children are treated, with fewer children treated in public hospitals and more in for-profit facilities.