Can Directed Research Bridge Opposing Views on Expanding Medicaid?

Authored By 
Martin Hackmann
Blog contributor 
Policy Fellow
March 3, 2014

One of the key elements of national health reform is the expansion of Medicaid, which is expected to provide health insurance coverage for up to 8 million additional low-income adults and children in 26 currently participating states. The expansion also affects how health care services are delivered to beneficiaries, a provision which has been controversial. Some opponents claim that “Medicaid is worse than having no coverage at all,”  contending that low Medicaid reimbursement rates make it difficult for beneficiaries to access high-quality care. While there is convincing empirical evidence refuting this argument, it is true that quality of care for Medicaid beneficiaries depends on the design of specific Medicaid policies.

Medicaid is run by the states, and there is a great deal of variation in the program across the country. As such, claims about delivery of care should focus on policies in a given state, not just on the Medicaid program generally. Scholars should study controversial state-level policy instruments directly and ask how they can be reformed to improve the delivery of care for financially disadvantaged populations.

One such policy that affects both access to and quality of care is Medicaid’s provider reimbursement rates. Primary care physicians, hospitals, and nursing homes receive pre-specified payments for providing health care services to Medicaid beneficiaries. For a given cost of care, higher reimbursement rates raise the profitability of providing services and may therefore lead health care providers to either ease access or improve the quality of care—or some combination of the two—to attract additional Medicaid beneficiaries to their facilities. Thus, increasing the typically low (at least when compared with Medicare) Medicaid reimbursement rates may be one way to address concerns about delivery of care for Medicaid beneficiaries.

Obviously, an increase in Medicaid generosity increases public spending, and this additional expense must be taken into account when we consider increasing Medicaid reimbursement rates. However, depending on exactly how such increases affect quality of care, these additional Medicaid dollars could be well spent. In my dissertation, I study the effect of changes in regulated Medicaid reimbursement rates on the quality of care in the U.S. nursing home industry. Medicaid is the predominant payer in this industry, covering about two thirds of all nursing home residents. My findings indicate that nursing homes increase the number of skilled nurses per resident, which are the key inputs for the production of health care quality in this labor-intensive industry, in response to an increase in Medicaid reimbursement rates. To investigate the associated normative implications, I quantify the increase in public spending, the gains in consumer surplus, and the effects on provider profits using data from Pennsylvania on nursing home choices and information on salaries and fringe benefits from cost reports. My findings indicate that the staffing levels in nursing homes are actually inefficiently low: the consumer gains produced by hiring an extra skilled nurse exceed the additional costs (which combine salary and fringe benefits). Taken together, these findings provide a rationale for raising Medicaid reimbursement rates, as such increases lead nursing homes to raise their inefficiently low staffing levels.

My work is just one example how directed research on specific Medicaid regulations can provide insights into how to improve the program overall. This line of research can complement the evaluation of Medicaid expansions, not least because the uninsured poor often receive subsidized healthcare as uncompensated care, raising prices for everyone else. Since we can monitor and coordinate the delivery of care for this population more directly if they are covered by Medicaid, future research should revisit specific regulations in order to understand how policy reform can improve the cost-effectiveness and quality of health care delivery. Such research can help bridge opposing viewpoints on Medicaid expansion by showing how specific changes can broadly benefit low-income populations in ways that raise social welfare overall.

Martin Hackmann is a Policy Fellow at ISPS and a fifth year PhD student in the Economics Department. His research interests lie in the field of industrial organization and health economics.

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