Why Not Give Cash Instead of Medicaid?

This question is kicking around the blogosphere and Twitter. The current interest is inspired by the incorrect view that the latest Oregon Health Study paper shows that Medicaid does not improve physical health outcomes but does confer financial benefits. In fact, though the study does show it confers financial benefits, it does not show that Medicaid confers no physical health benefit. It shows that the study had insufficient sample to detect reasonably sized, clinically significant physical health improvements over two years. The authors explain this in their concluding discussion, though I acknowledge it is not in written in a way that is as accessible as it could be. (See Kevin Drum.)

Nevertheless, a great deal of the benefit of health insurance is financial security. And, even though Medicaid does more than that, we can still entertain the idea of giving cash instead. Here are a few points and questions of relevance:

  • The Oregon Health Study paper based on one year of follow-up, published in the Quarterly Journal of Economics in August 2012 (ungated PDF here), includes the result that Medicaid led to a statistically significant 32% increase in overall happiness. The authors point to some other work that shows this is equivalent to a doubling of income. (See page 29 and footnote 31.) This begins to suggest how much cash would be required to do the job of Medicaid. But it is only a start.
  • Presumably an income transfer would be paired with a catastrophic-only public insurance benefit with some deductible considered high for poor Americans. What would we do with people who blew through their cash, leaving insufficient funds for the deductible? Would we deny them care? Even life saving care? Hard to imagine.
  • What would we do for people with consistent, non-catastrophic range annual health care needs, e.g., due to a chronic or congenital condition? Would cash payments be risk-adjusted?
  • Another feature of the in-kind benefit of health insurance is that it supports the health care infrastructure to an extent cash payments may not. This could be good or bad depending on your view of that infrastructure and public support for it.
  • If we were to study cash payments vs. traditional Medicaid, what outcomes would you select?
  • How likely do we think it is that Congress would consider allowing a state to swap Medicaid for a cash benefit? I consider the chance of this extremely low in the foreseeable future. Meanwhile, this year, states need to choose an allowable Medicaid expansion variant or no expansion. Among the feasible set of options, which do cash benefit proponents dislike least?

What are some other considerations? Any relevant research come to mind?

[Originally posted at The Incidental Economist]

Austin Frakt

Austin Frakt is a health economist and an assistant professor at Boston University's School of Medicine and School of Public Health. He blogs at The Incidental Economist.