| August 4, 2011

Oregon’s Verdict on Medicaid

Americans may be surprised to learn that little solid evidence exists to support the claim that expanding health insurance will improve the health and financial security of the uninsured; that research calls into question whether broad coverage expansions improve health at all; and that some research even suggests that the overall benefits of such expansions may not be worth the cost.

We lack definitive evidence because no developed nation has ever conducted a study that randomly assigns people to receive health insurance in order to control for other factors that might affect these outcomes. Until now.

In 2008, Oregon decided to enroll an additional 10,000 people in its Medicaid program via lottery. The nation’s top health economists pounced on the opportunity to compare medical consumption, health outcomes, and financial stress among “able-bodied uninsured adults below 100 percent of [the] poverty [line],” some of whom were randomly assigned to Medicaid and some of whom were not. The Oregon Health Insurance Experiment (OHIE) is particularly relevant because, starting in 2014, President Obama’s new health-care law will enroll another 16 to 20 million such people in Medicaid.

Last month, the OHIE researchers released their results after year one of the experiment.

As one might expect, Medicaid coverage led to higher medical consumption. The likelihood of having a hospital admission rose from roughly 7 percent to 9 percent. Average outpatient visits rose from 1.9 to 3. Mammograms for women over age 40 increased from 30 percent to 49 percent, and diabetes screening increased from 60 percent to 69 percent. Average spending was about 25 percent (or $778) higher for Medicaid enrollees in the first year.

Other findings were less intuitive. For example, medical consumption was no higher in the first half of the year, suggesting there was no “pent-up demand” for medical care. Though President Obama has claimed that broader health-insurance coverage and consumption of preventive care would lead to a reduction in emergency-room visits, the OHIE found no discernible difference in ER use between Medicaid enrollees and the control group.

What benefits did all this medical care purchase? As one might have expected, Medicaid reduced financial strain. The likelihood of having out-of-pocket medical expenses fell from 56 percent to 36 percent, while the likelihood of having to borrow money or skip paying other bills to pay for medical care fell from 36 percent to 21 percent. Enrollees’ likelihood of having any type of unpaid bill sent to collection fell from 50 percent to 45 percent.

What about health? Though the president has claimed his health-care law will “save lives,” the OHIE detected no evidence that extending Medicaid to 10,000 adults did so in the first year. On one hand, we might not expect to see any effect just one year into the experiment, since mortality rates among adults aged 19 to 64 are relatively low. On the other hand, this finding is consistent with a previous study, coauthored by one of the OHIE researchers, that found no evidence that Medicare (which covers a much older and sicker population) saved any lives even 10 years after its introduction. (In future years, OHIE researchers will be able to report on other objective measures of health such as blood pressure and cholesterol levels.)

On subjective measures of health, the likelihood of screening positive for depression fell from 33 percent to 25 percent, and the share reporting their health to be good or better rose from 55 percent to 68 percent. However, two-thirds of the improvement in self-reported health occurred almost immediately after enrollment, before any increases in medical consumption. The authors posit that much of this improvement could reflect “an improved overall sense of well-being” rather than “changes in objective physical health.”

Supporters of President Obama’s health-care law may tout these benefits, but the OHIE does not provide the vindication they seek. First, despite being eligible for Medicaid, 13 percent of the control group had private health insurance—suggesting that on some dimension, Medicaid’s eligibility rules are already too broad.

Second, the OHIE extended coverage to the most vulnerable population of uninsured Americans, yet the improvements in health and financial security are so far apparently modest. At higher income levels, where individuals have greater baseline access to health insurance and medical care, the benefits of expanding coverage are likely to be smaller and the costs (to the extent that crowd-out is higher at higher income levels) will be greater.

Third, supporters must show not only that expanding coverage improves health but also that it does so at a lower cost to taxpayers than alternative policies. Health economists generally agree that discrete programs promoting highly effective treatments (for hypertension, diabetes, etc.) could produce health gains as large as expanding health insurance would, but at far less expense. Reducing taxes could plausibly reduce financial strain to a similar degree by expanding job creation.

Finally, the OHIE illuminates an unflattering feature of the push for Obamacare. For a century, the Left has advocated universal health insurance despite not knowing what benefits it might bring. In 2010, Congress and President Obama vastly expanded Medicaid without waiting for the results of the one study that might tell them what taxpayers would get in return for their half a trillion dollars. As the law’s supporters seek to cajole doctors into practicing evidence-based medicine, it is no small irony that they themselves dove headfirst into evidence-free policymaking.

Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of "Healthy Competition: What’s Holding Back Health Care and How to Free It."

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