NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Contracting Out Increase the Efficiency of Government Programs? Evidence from Medicaid HMOs

Mark Duggan

NBER Working Paper No. 9091
Issued in August 2002
NBER Program(s):   HC   PE

State governments contract with health maintenance organizations (HMOs) to coordinate medical care for nearly 20 million Medicaid recipients. Identifying the causal effect of HMO enrollment on government spending and health care quality is difficult if, as is often the case, recipients have the option to enroll in a plan. To estimate the average effect of HMO enrollment, this paper exploits county-level mandates introduced during the last several years in the state of California that required most Medicaid recipients to enroll in a managed care plan. The empirical results demonstrate that the resulting switch from fee-for-service to managed care was associated with a substantial increase in government spending but no observable improvement in health outcomes, thus apparently reducing the efficiency of this large government program. The findings cast doubt on the hypothesis that HMO contracting has reduced the strain on government budgets.

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Document Object Identifier (DOI): 10.3386/w9091

Published: Duggan, Mark. "Does Contracting Out Increase The Efficiency Of Government Programs? Evidence From Medicaid HMOs," Journal of Public Economics, 2004, v88(12,Dec), 2549-2572. citation courtesy of

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