Medicaid vs. Cash for the Poor

In a Think Tank post last week, I wrote that in trying to sell Obamacare’s Medicaid expansion to states, the administration “has made no attempt to argue that expansion represents the most economically efficient use of those dollars—that the funds could not be better used building bridges, returned to citizens,” or other things. A study released this month raises questions about the very utility and efficiency of Medicaid coverage.

The study, from MIT’s Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer, used data from an Oregon health insurance experiment—in which some low-income citizens received access to Medicaid and some did not, based on the results of a random lottery—to estimate the utility of Medicaid coverage. They found that beneficiaries valued Medicaid at 20 cents to 40 cents on the dollar; in other words, for every $1,000 the states and federal government spent on health coverage, the average beneficiaries felt like they were receiving goods or services valued at $200 to $400.

In response, Bloomberg View’s Megan McArdle asked whether the poor would prefer cash benefits to Medicaid. It seems like a fanciful question; for one thing, programs providing cash benefits—such as the Earned Income Tax Credit—historically suffer from a large incidence of fraud. But say a state wanted to offer residents such a choice. Would the Obama administration allow it?

The state waiver program included in Obamacare provides flexibility only to the extent that states provide coverage at least as generous to as many people as the health-care law itself. A state cannot target resources only to certain groups—individuals with disabilities, for example—or provide slimmed-down coverage to some beneficiaries. Under that logic, it seems that if a state wanted to provide residents a choice between a smaller cash benefit and Medicaid insurance coverage, the administration would not permit such a measure—even though, according to the MIT study, the average beneficiary would prefer this outcome, and taxpayers would benefit as well.

While the Obama administration talks about its flexibility, that appears to apply only when such flexibility promotes the administration’s objectives. The president said early in his tenure that for too many years “rigid ideology has overruled sound science.” Now, an MIT study shows “sound science” questioning the efficiency and utility of Medicaid coverage for beneficiaries. Will the administration react to this scientific evidence, or will its own ideology prevent the consideration of more innovative, and potentially more effective, policies?

This post was originally published at the Wall Street Journal Think Tank blog.