Talk to people in Oregon about health care for long and eventually you will be asked something like this: “You’ve heard the air conditioner story, right?”

In this case, it’s John McConnell, a health economist at Oregon Health and Science University, doing the asking. As it turns out, I have heard the story; it’s one that Oregon Governor John Kitzhaber loves to tell. He loves to tell it so much, in fact, that it has become something of a running joke in Oregon health-policy circles. At this point, even Kitzhaber is in on it. Before he repeats it to me, he says, “I probably shouldn’t bore you with my air conditioner story.”

Here’s the air conditioner story: There’s a 90-year-old woman with well-managed congestive heart failure who lives in an apartment without air conditioning. That’s actually the whole story.

Kitzhaber, a former emergency room physician, sees this as the perfect example of what’s wrong with our health-care system. “A hot day could send the temperature in her apartment high enough that it strains her cardiovascular system and kicks her into full-blown congestive heart failure,” he said. “Under the current system, Medicare will pay for the ambulance and $50,000 to stabilize her. It will not pay for a $200 window air conditioner, which is all she needs to stay in her home and out of the hospital. The difference to the health-care system is $49,800. And we could save that $49,800 without reducing her benefits or her quality of life.”

Two Experiments

The past few years have seen two remarkable health-care experiments in the Beaver State. One is the Oregon Health Insurance Experiment, the first randomized, controlled trial comparing Medicaid — or any kind of health insurance — with being uninsured. The other is Kitzhaber’s effort to rebuild the state’s Medicaid program around community health rather than individual fee-for-service treatments. The health-insurance experiment has gotten all the attention. But it’s the Medicaid reforms that really matter.

The Oregon Health Insurance Experiment didn’t begin as such. It began as a budget cut. From 2002 to 2008, Oregon threw 93,000 people out of its Medicaid program. In 2008, the state found it had enough money to add 10,000 of them back. The only fair thing to do, state officials figured, was draw straws. So 90,000 of the poorest residents of the richest country the world has ever known entered a lottery to win health insurance.

The 10,000 Oregonians who got Medicaid weren’t the lottery’s only winners, though. Early on, a group of eminent health economists realized the lottery offered a chance to conduct a study no one in their discipline had ever managed but everyone had always wanted: a randomized, controlled experiment comparing those who received Medicaid with those who remained uninsured. This would enable researchers to isolate the effects that insurance — at least as delivered by Oregon’s Medicaid program — had on the uninsured.

“It’s hard to overstate how excited we were,” said Amy Finkelstein of the Massachusetts Institute of Technology. “We thought it was a once-in-a-lifetime opportunity to bring the gold standard of experimental design to this question.”

Two weeks ago, the group reported the data from the first two years of the study. They found that Medicaid coverage increased the amount of health care people used, offered almost total protection against catastrophic health expenses and reduced depression by 30 percent, but it didn’t show a statistically significant effect on blood pressure, cholesterol or blood sugar.

Statistical Questions

The study has come under fire from health researchers who think the sample of sick people was too small to show statistically significant improvements in those measures. “What I don’t get is if you look at the table in their study and look at baseline blood pressure it was like 119 over 76,” said Aaron Carroll, associate director of Children’s Health Services Research at Indiana University’s School of Medicine. “That was normal. You wouldn’t expect it to go down by nine. It would be a bad thing for normal blood pressure to drop that much. All we should care about is blood pressure in the small subset that had high blood pressure. But they don’t present that.”

It’s a critique that Katherine Baicker, a Harvard health economist who was one of the principle authors of the study, partially accepts. “Our power to detect changes in health was limited by the relatively small numbers of patients with these conditions,” she said. “Indeed, the only condition in which we detected improvements was depression, which was by far the most prevalent of the four conditions examined.” She also noted that the diabetes results were consistent with the improvements one would expect from the clinical literature but the number of people with diabetes was too small to establish significance.

However, she said the sample size was large enough to rule out large improvements in blood pressure and cholesterol, at least over the first two years.

All this might make for an interesting academic panel on Medicaid. But the results were quickly conscripted into the war over President Barack Obama’s health-care reforms. “Today, the nation’s top health economists released a study that throws a huge ‘STOP’ sign in front of ObamaCare’s Medicaid expansion,” wrote Michael Cannon, director of health policy studies at the libertarian Cato Institute. Perhaps the law’s supporters oversold what is really just “a $1 trillion program to treat mild depression,” wrote the Daily Beast’s Megan McArdle.

I would be more favorably inclined toward such commentary if the authors followed their analysis to its logical conclusion and turned in their own health-insurance cards. “My daughter needs private coverage,” says Ezekiel Emanuel, an oncologist and chairman of the Department of Medical Ethics and Health Policy at the University of Pennsylvania who worked on the Affordable Care Act. “Do I say to her the health-care system in the U.S. won’t necessarily do a great job managing your blood pressure so don’t get health insurance? No way in hell! And if that wouldn’t be my response for my daughter it shouldn’t be my response for poor people.”

Medicaid’s Impact

The study’s bottom line is that Medicaid worked. It performed the core functions of health insurance. It got people access to health care and protected them from catastrophic expenses. “We can reject the ‘Medicaid does nothing’ hypothesis,” Finkelstein said. “Medicaid had impact. It increases their use of preventive care. It increases their outpatient visits. It increases their health-care utilization.”

What the study called into question is the next step in the health chain: How much healthier, really, does the care we’re buying make us? And I use the term “us” advisedly. “Medicaid is a financing tool,” Kitzhaber said. “Once people get on Medicaid they are bought into the same hyperinflationary, inefficient, backloaded medical system as everyone else.” That’s the system Kitzhaber wants to change.

In 2012, Kitzhaber struck an audacious deal with the Obama administration. If the federal government would give Oregon $1.9 billion to remake its Medicaid program, Oregon would put Medicaid on a tight budget, guaranteeing $11 billion in savings over the next decade. If the savings don’t materialize, the funds dry up and Oregon is left with a huge budget hole.

“The fundamental problem with our health-care system is the growing discrepancy between the cost of care, the resources available to pay for it and the tenuous connection between that expenditure and actual health,” Kitzhaber said. “What we’re doing is instead of putting our budget into the ER and paying for congestive heart failure after congestive heart failure, we’re putting it into care coordination and community health workers. We’re investing in health. It’s just a paradigm shift.”

At the core of this shift are Oregon’s 15 “coordinated care organizations.” What makes them different from accountable care organizations or managed care is that they’re responsible for more than the health of their members, which now include 94 percent of the state’s Medicaid population. They’re also responsible for the health of the communities they’re in. They have to run regular community health assessments, and the results influence their pay.

This is a potentially transformational notion, based on a belief that the health-care system doesn’t decide or drive health, even that individuals don’t particularly drive their own health. If you live in a community where the streets are dangerous and the health of your neighbors is poor, you’re probably going to be unhealthy — and there’s little or nothing your local hospital can do about it.

Radical Flexibility

Privately, many who are enthusiastic about Oregon’s effort to reimagine its health-care system admit that it’s not exactly clear how CCO’s will begin transforming whole communities.

The biggest change relates to the air conditioning story. Kitzhaber has given the CCOs radical flexibility in what they can purchase with Medicaid dollars. They can buy an air conditioner for a 90-year-old woman in a hot apartment. They can also try to improve outcomes by investing in “upstream” preventive care; one CCO is paying pregnant women to stop smoking. They’re also integrating with other public services.

“Six months ago,” said Oregon Health and Science University’s McConnell, “if you were a Medicaid patient who came to ER 20 times you’d get treated on your 21st time and go home. Now you come in and there’s a social worker with a list of names and they work with you when you leave to connect you with outpatient care and other resources.”

All that might be an improvement, but it’s a long way from a revolution. “I’m obsessed with what they’re doing in Oregon,” says Jeffrey Brenner, head of the Camden Coalition of Healthcare Providers, one of the country’s most innovative community-health efforts. (Do you remember that Atul Gawande article in the New Yorker about the doctor pioneering “hot spotting” in health? That was Brenner.) “But the problem you can run into with this population health stuff is people don’t know how to connect it to a change strategy that’s incremental. They get paralyzed by the vision and they don’t know where to start. You need small victories.”

Obamacare gives almost every American health insurance. That’s a necessary but not sufficient condition for making them healthier. Oregon’s experiment may or may not work, but it’s the right next step. “Medicaid can be improved,” Carroll said. “But we need to differentiate between the way we deliver care and the way we design insurance. Giving people insurance just gives them the access to the care itself. Denying them Medicaid deprives them of simply accessing the system. But if we want to improve quality, we have to change how we deliver care.”

In Oregon, at least they’re trying.

Ezra Klein

Follow Ezra on Twitter @ezraklein. Ezra Klein is the founder and editor-in-chief of