Does Contracting Out Increase the Efficiency of Government Programs? Evidence from Medicaid Hmos

47 Pages Posted: 1 Aug 2002 Last revised: 5 Nov 2022

See all articles by Mark Duggan

Mark Duggan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2002

Abstract

State governments contract with health maintenance organizations (HMOs) to coordinate medical care for nearly 20 million Medicaid recipients. Identifying the causal effect of HMO enrollment on government spending and health care quality is difficult if, as is often the case, recipients have the option to enroll in a plan. To estimate the average effect of HMO enrollment, this paper exploits county-level mandates introduced during the last several years in the state of California that required most Medicaid recipients to enroll in a managed care plan. The empirical results demonstrate that the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no observable improvement in health outcomes, thus apparently reducing the efficiency of this large government program. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.

Suggested Citation

Duggan, Mark G., Does Contracting Out Increase the Efficiency of Government Programs? Evidence from Medicaid Hmos (August 2002). NBER Working Paper No. w9091, Available at SSRN: https://ssrn.com/abstract=321357

Mark G. Duggan (Contact Author)

University of Maryland - Department of Economics ( email )

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