[JMP] Separated at Birth: The Fragmentation of Health Insurance and Underinvestment in Preventative Care

Abstract

Health insurance in the United States is fragmented. Americans, and especially low-income groups, receive their insurance coverage through numerous plans throughout their lives and even at one point in time, their coverage benefits can be outsourced to different insurers. This study presents empirical, causal evidence showing that such fragmentation reduces the incentives for any one plan to invest in preventative health. Specifically, I study a policy in New York’s Medicaid that carved out very low birthweight newborns from the responsibilities of private plans and placed them under the public state insurance program. Once the carve-out ended in 2012 and private plans became liable for the costs of very low birthweight newborns, pregnant enrollees covered by these plans experienced more preventative care that is specifically targeted towards monitoring and reducing the risk of preterm and low birthweight newborns. These increases were above and beyond secular changes in care experienced by pregnant enrollees in the public program. Moreover, the largest gains appear among African American enrollees and enrollees with a high risk of delivering a preterm and a low birthweight newborn, suggesting that the fragmented regime had not just underallocated prevention but also misallocated it.