Study: Medicaid Benefits are Well-Worth its Costs

By Sophia Duong

A new study published in the American Journal of Public Health, “Considering Whether Medicaid is Worth the Cost: Revisiting the Oregon Health Study,” finds that Medicaid is in fact a cost-effective program. The finding comes from researchers at Columbia University and New York University who analyzed data from the Oregon Health Study (OHS), the experiment that began in 2008 when the state randomly selected uninsured participants to apply for Medicaid coverage creating a randomized controlled trial of a social policy.

The original OHS results found that Medicaid coverage provided financial protections, increased rates of preventive screenings, reduced depression, and improved self-rated health. However, the OHS did not find any statistically significant reduction in blood pressure, cholesterol levels, or blood glucose levels.

So with a mixed bag of results, researchers set out to answer the ultimate question overshadowing the study: is Medicaid worth the investment?

In order to answer this question, the authors used the observed, statistically significant results of the OHS to run more sensitive statistical tests of Medicaid costs and benefits. This included all of Medicaid’s costs but only the benefits associated with the reduction in clinical depression. In employing a conservative measure of Medicaid’s benefits, the author’s could be more confident of their analysis.

The authors’ cost-effectiveness analysis found that the observed benefit of providing Medicaid was $62,000 per quality-adjusted life-year (QALY) gained. To spare you the trouble of dusting off your health economics notes, a QALY is a measure frequently used in cost-effectiveness studies in health care. It measures not only the length of life, but also the quality of life.

In terms of cost per QALY gained, we’re looking at how much it would cost for an additional life year using the health intervention being studied. So this means it costs $62,000 to add an additional year of good health (in terms of decreasing depression) through Medicaid coverage. The cost of $62,000 per QALY gained is less than other important social policies we have, such as treating disabling spinal problems ($90,000 per QALY) or placing smoke detectors in homes ($210,000 per QALY). The authors note that “[t]hese findings are remarkably similar to earlier assessments of the cost-effectiveness of private health insurance and Medicare.”

The researchers estimated that as a society, we would see a net return of $68,000 per Medicaid enrollee! In other words, investing in Medicaid – for example through eligibility expansions and cost sharing protections – improves health outcomes for beneficiaries and is cost-effective for state budgets.

Besides its findings regarding cost-effectiveness, the study serves as a useful reminder that Medicaid benefits are best understood broadly, and over the long term. In weighing the costs and benefits of Medicaid, the study’s authors only looked at the benefits for decreased depression, because these benefits were observed in the OHS. Thus, the study’s Medicaid cost-effectiveness findings do not even include the benefits that could be gained through increased prevention screenings, diagnosis and treatment, or financial security that being covered through Medicaid provides enrollees.

The original OHS had limited follow-up, leading researchers to question whether Medicaid coverage benefits were undercounted in the original OHS results.

But while the OHS did not show any changes in lab test results, researchers in another study followed up with participants three years after they gained Medicaid coverage. Many enrollees said that their health actually did improve, reporting that their benefits were realized a few years after enrollment and working continuously with a provider.

Longer-term health benefits from Medicaid coverage are becoming increasingly evident. Not only does the follow-up with the OHS participants show it takes at least a few years to see health improvement, but more recent studies are also finding that Medicaid has important benefits 20 or more years later. On Say Ahhh! we’ve been blogging extensively on the new research, and here are the highlights:

The research shows that Medicaid is a worthwhile investment. As we look to the future of Medicaid, this is important information to help guide good policy.