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Heterogeneity in the Impact of Privatizing Social Health Insurance: Evidence from California's Medicaid Program

State governments face the classic “make or buy” decision for the provision of Medicaid services. Over the past two decades, the majority of states have outsourced the provision of social insurance through Medicaid Managed Care (MMC) programs. These programs have been extensively studied in the literature – with little evidence of large positive or negative effects. However, most states allowed older and sicker enrollees to remain enrolled in the government run fee for service (FFS) programs. It is possible that these more fragile enrollees could have a different experience in managed care. In this paper we study California’s mandatory enrollment of the senior and persons with disabilities (SPD) population in MMC. We find this mandatory enrollment caused an increased use of the emergency department and transfers between hospitals. This was not simply a hassle cost for enrollees – we also estimate an increase in mortality for the affected population. These effects were strongest for enrollees who had the greatest use of medical services prior to enrollment in MMC – the types of enrollees that might be expected to have a different experience with managed care. Our results suggest the adverse impact of MMC varies by the health of enrollees, which should inform the optimal outsourcing decision for governments. Acknowledgements: We are grateful to Jon Gruber, Atul Gupta, Emilie Jackson, Timothy Layton, Rebecca Staiger, Boris Vabson, and Amanda Starc for helpful comments. We also thank Betty Henderson-Sparks, Aaron Maggetti, Amy Peterson, and Jon Teague of the California Office of Statewide Health Planning and Development for their assistance in providing the hospital / ER discharge data. All remaining errors are our own.