American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Private Provision of Public Services: Evidence from Random Assignment in Medicaid
American Economic Review
(pp. 2038–84)
Abstract
This paper examines the effects of privatizing social health insurance. We exploit a natural experiment in Medicaid, wherein nearly 100,000 enrollees were randomly assigned between a publicly operated fee-for-service system and private managed care. Managed care reduced costs by 5.6 percent via cost-effective substitutions among prescription drugs and via lower prices for outpatient services. We present evidence that pharmacy utilization management was the key mechanism reducing overuse and encouraging substitution to lower-cost drugs without decreasing observed quality. In contrast, privatizing medical benefits led to only modest savings and was associated with decreased health care quality and consumer satisfaction.Citation
Agafiev Macambira, Danil, Michael Geruso, Anthony Lollo, Chima D. Ndumele, and Jacob Wallace. 2026. "The Private Provision of Public Services: Evidence from Random Assignment in Medicaid." American Economic Review 116 (6): 2038–84. DOI: 10.1257/aer.20230541Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- H41 Public Goods
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs