Does health coverage make people healthier? A new study provides a compelling answer to the vexing question underlying the…

The search for better economic policy.
July 7 2011 7:35 AM

Does Health Coverage Make People Healthier?

A new study provides a compelling answer to the vexing question underlying the health care debate.

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The study turns up a number of stark differences between the "treatment" (those who received Medicaid) and "control" (those who didn't) groups, some more surprising than others. Those selected by the lottery were about 7.5 percent more likely to be admitted to the hospital for treatment. But when you take into account the fact that most lottery winners never actually got insurance (and some lottery losers found other insurance), the numbers suggest that insurance increased the chances of hospital admission by 30 percent.

Relative to the control group, the newly insured used more of just about every kind of health care service the researchers considered. This included big jumps in preventive care, ranging from a 60 percent increase in mammograms to a more than 50 percent increase in having a regular doctor and clinic for primary care needs.

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The only type of care with no statistically discernible increase—or decrease—was emergency room use. Given that usage goes up or is at best flat in the one area you might expect to see a decline, adding to Oregon's Medicaid rolls naturally added to state health care expenses. A rough calculation based on the increased service use is around $800 per year per enrollee. (The full cost to the state of Oregon is much higher, since the government is now on the hook for all the services that the new enrollees had been using previously, many of which had presumably been covered by charity care and other nongovernment service providers that care for the uninsured.)

Given the added expense, did the Medicaid expansion prove to be cost-effective? That is, did the treatment group actually have better health outcomes? It's too early to really see how much the increase in early interventions pay off in terms of heart disease, cancer, or life expectancy. But to get a sense of whether there were health improvements even within the first year, the researchers surveyed the lottery participants on the state of their health in the summer of 2009, a year or so after Medicaid enrollment. At least based on their survey responses, the health impact of medical access was already kicking in. Insurance increased the chances that a respondent reported himself in "good," "very good," or "excellent" health (as opposed to "poor" or "fair") by 25 percent, and reduced the number of "sick days"—days lost to work and/or recreation because of poor health—by about 15 percent.

The survey also asked whether respondents were "happy, pretty happy, or not too happy." The insured were 32 percent more likely to answer "happy" or "pretty happy." This is an enormous effect. To get a sense of how large, it's helpful to use estimates from studies that link income to happiness as a benchmark. You'd have to double a participant's income to see an effect like this, making Medicaid ridiculously good value for money. Better health is surely part of the reason for the more upbeat view of life. But insurance also relieves the financial anxieties that come with being uninsured in America—the fear that, quite literally, one wrong step could spell financial calamity. The study found that Medicaid recipients were 40 percent less likely to skimp on other financial obligations as a result of medical bills, and presumably even those that never had health problems worried less about such possibilities.

There are limits to what you can extrapolate from one, single-year study of 10,000 Medicaid recipients in Oregon to health care reform more generally. If millions of poor Americans were enrolled in Medicaid tomorrow, it might overwhelm the system's capacity. And while the program might have longer-term effects not seen in a one-year study, as preventive care starts to have an impact, it's also possible that the benefits of Medicaid may lessen with time. For example, once people adjust to their newly insured circumstances, their sense of contentment and well-being may quickly dissipate. We'll have more information on these long-term effects as researchers survey participants in the Oregon Medicaid lottery in future years. They're also collecting data on physiological measures like cholesterol levels and blood pressure to measure more objectively participants' well-being.

For now, though, the study represents the best evidence we've got. And based on its findings, Medicaid seems like a very cheap way of making Americans better off, and the goals of the Affordable Care Act well worth fighting  to put into practice.

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Ray Fisman is a professor of economics at the Columbia Business School and co-author of The Org: The Underlying Logic of the Office. Follow him on Twitter.

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