Public Health Insurance Expansions and Hospital Technology Adoption

Abstract

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 affects hospitals' decisions to adopt neonatal intensive care units (NICUs). While the Medicaid expansion provided new insurance to a substantial number of pregnant women, 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 data, we find that on average, Medicaid expansion has 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 slows NICU adoption. This holds true particularly when Medicaid payment rates are very low relative to private payment rates. 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.