first few thousand dollars of medical expens-
risk, and thus may further increase the cost
es. The researchers demonstrated that avail-
of private health insurance. That in turn
ability of "free" medical care encouraged
encourages greater Medicaid enrollment and
individuals to consume an average of 43 per-
increases the likelihood that those ineligible
cent more care but failed to produce measur-
for Medicaid will lack coverage and rely on
able overall health gains.44
emergency rooms and other providers for
uncompensated care.
Though Medicaid allows millions of
Finally, Medicaid's significant tax burden
Americans to consume medical care free of
makes nonrecipients less able--and perhaps
charge, data on the extent of over-utilization
less willing--to provide charitable assistance
and its costs are scarce. Nonetheless, the
to those in need of medical care. Just as
Medicare program can provide some insight
means-tested government subsidies discour-
into the amount of unnecessary care pur-
age self-help by recipients, they discourage
chased by Medicaid. Medicare subsidizes care
charitable efforts by donors. A study by
for a similar number of individuals, many of
Jonathan Gruber and Daniel Hungerman
whom are insensitive to price. Researchers at
found that, although churches were "a cru-
Dartmouth College have found that "nearly
cial provider of social services through the
20 percent of total Medicare expenditures . . .
The tax burden
early part of the twentieth century," church-
appears to provide no benefit in terms of sur-
that Medicaid
es' charitable activities fell by nearly one-third
vival, nor is it likely that this extra spending
improves the quality of life."45 That is a con-
as a result of increased relief spending under
places on
the New Deal.43 By providing medical care to
servative estimate of overuse, as it includes
low-income
only care that provides no value; it does not
50 million Americans at a cost of more than
earners should
account for care that provides some benefit,
$1,000 per capita, Medicaid likely crowds out
but less benefit than its cost. If overuse in
significant amounts of charitable care, either
not be taken
Medicaid were of the same order of magni-
because individuals are less able to give
lightly.
tude as in Medicare, its cost would be in the
because of Medicaid's tax burden or because
tens of billions of dollars each year.46
they believe the problem is taken care of.
Overuse affects, and is affected by, other
costs of the program. For example, encourag-
Overconsumption of
ing 50 million Americans to consume care
Medical Care
with little regard to cost increases demand
for medical services. That in turn should
result in higher prices for medical services.
A number of Medicaid's unseen costs
Not only does overuse make medical care
result from overuse of medical care by recipi-
more costly for both public and private pay-
ents. The program typically offers services to
ers, but higher prices for private care make
beneficiaries free of charge. That encourages
Medicaid a more attractive option than pri-
beneficiaries to consume medical care with-
vate coverage. Yet rising medical prices are
out regard to its cost. A patient in this posi-
rarely seen as a consequence of Medicaid's
tion will keep consuming costly medical care
effect on demand for medical services.
even though she receives little benefit from it.
Such overuse diverts money from more pro-
ductive uses, such as medical care that would
Price Controls
have benefited someone else.
Overuse can lead to a significant waste of
health resources. The RAND Health Insur-
Medicaid's administered prices act as
ance experiment observed use by individuals
price controls. Medicaid typically pays doc-
for whom health care was made "free" com-
tors at below-market rates for covered ser-
pared with use by those who faced tradeoffs
vices. As an illustration, Medicare's physician
between medical care and other items for the
reimbursement rates are widely considered to
9