Medicaid is one of the largest public programs in the United States—providing health insurance to over 75 million low-income Americans—and over three quarters of its enrollees receive care via private “managed care” insurers. In this article, we make three central points about the economics of contracting out Medicaid to private insurers. First, the empirical evidence on Medicaid privatization is mixed: contracting out has not meaningfully reduced public costs or improved quality of care. Second, we propose a framework, which we call “procured competition,” to describe the unique structure of Medicaid managed care as a hybrid of public procurement and regulated competition. Third, we discuss the key policy levers across procurement, competition, and consumer choice in this model. Throughout, we highlight open research questions, arguing that the enormous variation in how states design these programs—combined with limited evidence on what works—represents a promising area for high-impact scholarship.
Shepard et al. (Fri,) studied this question.