I attended a talk today at MIT by Amy Finkelstein, an economics professor who led a $20 million research study of a group of poor people in Oregon who were randomly assigned either to receive Medicaid or not (paper). Oregon had enough money to do for some of its poor able-bodied adults what ObamaCare will do for all poor able-bodied Americans: give them Medicaid (unlimited river of money as long as it is handed over to the world’s most expensive health care industry; I pointed out in my health care reform article that Americans could have a free house, free cars, free children, and free college education for those children if they cut their health care spending to what Mexicans spend). Oregon did not have enough money for everyone and therefore decided that the fairest way to allocate coverage was to let people apply and then give out coverage by lottery. It was an almost perfect random experiment, except that the program was limited to those who bothered to fill out the paperwork to apply (possibly sicker than average).
The study included actual checkups for thousands of participants, hence the enormous cost.
The conclusion was that Medicaid increased hospital use by about 30 percent, outpatient medical care by about 35 percent, and total spending by 25 percent. Finkelstein noted that advocates for expanding health insurance often predict that use of hospital emergency rooms will decrease when everyone is insured. That turned out not to be true in Oregon. The insured and uninsured used emergency departments at hospitals at roughly the same rate.
An unexpected result was the recipients of the Medicaid card reported themselves to be about 30 percent happier than before, a result equivalent to having doubled their income. As they did not measure all that much healthier this may be partially explained by a feeling of security that they won’t have to deal with the nightmare of being an uninsured individual in an American health care industry that exists to serve insurance companies, not individuals.
Finkelstein closed by noting that this result should not be too surprising. The introduction of Medicare in the 1960s resulted in an enormous increase in hospital usage and then a huge boom in hospital construction.
So if Americans as a whole behave the same as the survey group in Oregon, health care spending on approximately 20 million Americans should go up by 25 percent (Medicaid already consumes about half a trillion dollars every year, about the same as the GDP of Argentina, Belgium, or Norway). We may get some value for that money, though, as these people will be walking around with big grins.
[Note that the study proves Malcolm Gladwell more or less dead wrong. In 2005 he wrote a New Yorker article about how health care was different than anything else people buy. Providing insurance would not increase demand. The “moral hazard” that applied to every other kind of insurance did not exist for health insurance. Related: see my analysis of Gladwell’s Outliers.]