New Evidence on the Effects of Health Insurance

Those selected by ... lottery to apply for Medicaid have substantially and statistically significantly higher health care utilization, lower out-of-pocket medical expenditures and medical debt, and better self-reported health.

In early 2008, Oregon opened a waiting list for a limited number of spots in its Medicaid program for low-income adults. This program had previously been closed to new enrollment. The state drew names by lottery from the 90,000 people who signed up. Random assignment of health insurance to some but not others had never been done before in the United States.

In The Oregon Health Insurance Experiment: Evidence from the First Year (NBER Working Paper No. 17190), authors Amy Finkelstein, Sarah Taubman, Bill Wright, Mira Bernstein, Jonathan Gruber, Joseph Newhouse, Heidi Allen, Katherine Baicker, and The Oregon Health Study Group examine the effects of the Oregon Medicaid lottery after approximately one year of insurance coverage. The authors find that those selected by the lottery to apply for Medicaid have substantially higher health care utilization, lower out-of-pocket medical expenditures and medical debt, and better self-reported health than the control group that was not given the opportunity to apply.

Being selected through the lottery is associated with a 25-percentage-point increase in the probability of having insurance during the study period. This net increase in insurance appears to come entirely through a gross increase in Medicaid coverage, with little evidence of substituting public for private insurance.

They find that being covered by Medicaid is associated with a 2.1 percentage point (30 percent) increase in the probability of having a hospital admission, an 8.8 percentage point (15 percent) increase in the probability of taking any prescription drugs, and a 21 percentage point (35 percent) increase in the probability of having an outpatient visit. In addition, insurance is associated with an increase in reported compliance with recommended preventive care, such as mammograms and cholesterol monitoring.

Medicaid coverage also results in decreased exposure to medical liabilities and to out-of-pocket medical expenses, including a 6.4 percentage point (25 percent) decline in the probability of having an unpaid medical bill sent to a collection agency and a 20 percentage point (35 percent) decline in having any out-of-pocket medical expenditure. Because much medical debt is never paid, the financial incidence of expanded coverage thus appears to fall both on the newly insured and on their medical providers or others bearing the cost of uncompensated care. Finally, the authors find that insurance is associated with improvements across the board in measures of self-reported physical and mental health.

The authors' estimates of the impact of public health insurance in this study apply to able-bodied, uninsured adults below 100-percent of poverty who express interest in Medicaid coverage. In 2011, fewer than half of the U.S. states offered Medicaid coverage to this group, absent specific categorical requirements. As part of the 2010 Patient Protection and Affordable Care Act, starting in 2014 all states will be required to extend Medicaid eligibility to all adults up to 138 percent of the federal poverty level.

--Lester Picker