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.

Does health coverage make people healthier? Click image to expand.
Does health coverage make people healthier?

The passage of last year's Affordable Care Act promised to bring health coverage to all Americans, including the country's poorest and least likely to be covered under the current system: Among the act's many provisions was a guarantee of Medicaid coverage for uninsured low-income adults.

As with many aspects of the ACA, the effect of insuring millions of poor Americans represents a leap into the unknown. How much more health care would they use, at what cost, and to what benefit? Would Medicaid actually produce healthier, more able-bodied Americans? Or simply increase health care use with no discernable payoff? Would it even increase medical access at all?

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A landmark study  released this morning on a major health policy experiment in Oregon provides some hint at what the answer to these questions might be if the ACA becomes a reality. A consortium of researchers from MIT, Harvard, and the state of Oregon has studied the impact of randomly assigning Medicaid insurance to poor Oregonians in 2008 as part of an expansion of the state's health coverage. They found that Medicaid's impact on health, happiness, and general well-being is enormous, and delivered at relatively low cost: Low-income Oregonians whose names were selected by lottery to apply for Medicaid availed themselves of more treatment and preventive care than those who remained excluded from government health insurance. After a year with insurance, the Medicaid lottery winners were happier, healthier, and under less financial strain.

While the financial and health effects of medical insurance may seem self-evident, the costs and benefits of insurance can actually go in either direction. For example, one oft-cited rationale for making insurance universal is to discourage people from falling back on costly (to society) emergency room visits for problems that could be dealt with in a doctor's office. The insured may also seek treatment earlier than the uninsured, saving the state from covering costly hospital stays that could have been prevented by pre-emptive care. (But then again, they might not.) At the other extreme, the financial costs of expanding health coverage are potentially enormous if it turns out that the newly insured rush out to get all manner of unneeded procedures and medical attention that they no longer have to pay for.

The health benefits are also hard to gauge. Given the limitations of Medicaid, some have argued that the quality of care that comes with it is scarcely better than nothing. So why expect any health improvements at all from Medicaid enrollment? Insurance is also the source of what economists call "moral hazard," where those who are protected against the consequences of their actions take greater risks than they otherwise would. Insurance, even limited insurance, might encourage people to drive faster, eat more French fries, and keep smoking cigarettes, knowing that they at least won't be on the hook for the financial consequences of their self-destructive behavior.

One reason that the health care reform debate is so dominated by ideology rather than fact is that it is extremely hard to measure the impact of providing insurance coverage. You can't just compare people who buy insurance with those who don't because the two groups differ in all sorts of unobservable, unmeasurable ways. The kind of person who buys insurance is probably less of a risk taker to begin with, for example, and also more concerned about his health. And since most Americans get health insurance through their employers, it's only the unemployed and people with lousy jobs who are shut out of insurance—i.e., the types of people who are typically in worse health to begin with. Bad health itself may result in job loss, financial calamity, and loss of insurance, reversing the chain of causation.

Oregon provided a window of opportunity for identifying the impact of insurance when it opened a waiting list for a limited number of new spots in the Oregon Health Plan Standard that provided Medicaid insurance to poor adults who didn't quite meet the usual conditions for Medicaid (for example, poor but able-bodied adults). Nearly 90,000 Oregonians applied for the 10,000 slots, and the state picked the lucky Medicaid recipients by lottery. This gave the researchers a group of insurance applicants who were identical in every way except whether they got lucky in the OHP draw. If the lottery winners ended up spending more time at doctors' offices or told researchers they were happier and healthier, it wouldn't be because of some pre-existing condition or circumstance. Their insurance status was quite literally the luck of the draw.

The state conducted eight lottery drawings during 2008. The winners received the right to apply for Medicaid, and about 30 percent of these ultimately were enrolled in the program. (Many failed to submit their applications, and about half of those who applied were found to be ineligible, mostly because their incomes were above the poverty line.) The researchers followed both lottery winners and losers over the following year by matching their sample of lottery applicants to hospital and other administration data. They also conducted surveys on the health, general well-being, and financial circumstance of both groups.

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