Medicaid Eligibility Expansions and Privately Insured Patients

Motivated by the current Medicaid eligibility expansion, this paper explores how privately insured hospital patients are affected by an increase in Medicaid patients. A theoretical model shows that an expansion in Medicaid eligibility will reduce the quantity of private patients a hospital optimally treats and increase prices for the remaining private patients. The model is tested using a California health insurance program in the late 2000's that increased insurance coverage for uninsured individuals in particular counties. Two-stage regression results support the theoretical predictions and show that private patients face higher prices when the treatment of fixed marginal revenue patients increase