Is Health Care Spending Higher under Medicaid or Private Insurance?

Jack Hadley, John Holahan

This study examines the question of whether Medicaid is a higher cost program than private insurance, after adjusting for the health status of the people it covers. It uses multivariate statistical models to simulate comparisons that estimate the effects of private and Medicaid coverage on the likelihood of using services and level of expenditures. The simulations demonstrate that if Medicaid beneficiaries were instead given private coverage, their health care costs would be considerably higher. Conversely, if low-income privately insured individuals were given Medicaid coverage, spending would be lower. The authors also found no evidence that spending differences between the two study populations were due to lower service use by Medicaid beneficiaries. Hadley and Holahan conclude that much of the disparity in health care spending between low-income persons with Medicaid coverage and those with private insurance is due to differences in provider payment rates. (Inquiry 40(4): 323–42, Winter 2003/2004.)

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