Non-parametric frontier estimation of health care efficiency among US states, 2002–2008

Abstract

This paper examines cross-state health care efficiency rankings using modern non-parametric estimators. Cross-state efficiency rankings are robust to minor modifications in the input–output combinations used for estimation. This paper finds that there is no clear relationship between health care efficiency rankings and per capita health care expenditures in that state in the models used for this paper, even though this is a key variable that policymakers target. It also finds that Massachusetts, in one dataset, has shown significant productivity improvement from 2005 to 2008, the time period during which its health care reform was launched. In a second dataset, from 2002 to 2007, productivity regressed in Massachusetts. This may hint that efficiency gains from structural health care reform can outweigh population behavioral inefficiencies from using the ER as a source of primary care with insurance coverage expansion. I also find that states that chose to expand Medicaid were less efficient, on average, than states that did not choose to expand Medicaid. Simple variable comparisons suggest that this is an artifact of the data and political decision making, rather than people migrating for Medicaid or productive inefficiency.

Keywords:

• United States health care
• production efficiency
• order-α
• U.S. states