Public Health Insurance and Medical Spending: The Incidence of the ACA Medicaid Expansion

This paper examines the incidence of the cost burden associated with expanding public health insurance to low-income adults in the context of the Affordable Care Act. Using data from the Medical Expenditures Panel Survey (MEPS), I exploit exogenous variation in Medicaid eligibility rules across states, income groups and time. I find that public insurance eligibility reduced mean out-of-pocket spending by 19.6 percent among targeted households, but it did not causally increase total expenditures among beneficiaries. Rather, Medicaid expansion shifted the burden of payment from eligible households and private insurance (21.5 percent reduction) to taxpayers in the form of public insurance (46.6 percent increase). The efficiency of these public funds can be summarized by a mean Marginal Value of Public Funds of 0.70 in the full sample, 0.99 among households with at least one pre-existing condition, and 1.26 in states with an above-median number of public hospitals.