ESSAYS ON THE IMPACT AND INCENTIVES OF FEDERAL FUNDING IN MEDICARE AND MEDICAID

Background: Federal funding into the Medicare and Medicaid programs creates financial incentives that can have important implications for these programs and the populations that they serve. This dissertation contains three essays that explore the following topics: 1) The impact of the recent pay-for-performance payment reform, resulting from the Affordable Care Act, for Medicare Advantage plans with dual-eligible enrollees (paper 1); 2) the impact of the federal subsidy of state Medicaid programs in the form of the Federal Medical Assistance Percentages (FMAP) on the level of state Medicaid spending (paper 2); and 3) the impact of the federal subsidy of state Medicaid programs on infant mortality rates (paper 3). Methods: All three papers utilize an instrumental variable approach to address potential unobserved factors that could result in estimation bias. In addition, the three studies utilize panel data where units are observed over time allowing for fixed-effects analyses that measures within-entity variation to control for time-invariant unobservable factors. Results: Paper 1 finds that the share of dual-eligible enrollees within a Medicare Advantage contract is associated with a one half star lower rating in the CMS five-star quality rating system for measures that fall under the Intermediate Outcomes category. Measures in this category are closely tied to patient health behaviors that are often outside the plan’s control. Paper 2 finds that the FMAP does not impact the level of state Medicaid spending but increases the share of the state healthcare expenditures that is going into Medicaid. Paper 3 finds that marginal increases in the FMAP of a state are associated with lower infant mortality rates and that the effects are stronger for nonwhite infants and lower income states. Conclusion: Results from paper 1 suggest that the current pay-for-performance structure of the Medicare Advantage market should be revised so to not place Medicare Advantage contract with dual-eligible enrollees at a disadvantage. Results from papers 2 and 3 suggest that the federal subsidy of the Medicaid program, while does not increase state spending in Medicaid, acts to reduce infant mortality rate through increased health resources within the state