The Private Provision of Public Services: Evidence from Random Assignment in Medicaid
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% via cost-effective substitutions within 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 quality. In contrast, privatizing medical benefits led to only modest savings and was associated with decreased healthcare quality and consumer satisfaction.
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Copy CitationDanil Agafiev Macambira, Michael Geruso, Anthony Lollo, Chima D. Ndumele, and Jacob Wallace, "The Private Provision of Public Services: Evidence from Random Assignment in Medicaid," NBER Working Paper 30390 (2022), https://doi.org/10.3386/w30390.Download Citation
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Published Versions
Danil Agafiev Macambira & Michael Geruso & Anthony Lollo & Chima D. Ndumele & Jacob Wallace, 2026. "The Private Provision of Public Services: Evidence from Random Assignment in Medicaid," American Economic Review, vol 116(6), pages 2038-2084.