Does Managed Care Widen Infant Health Disparities? Evidence from Texas Medicaid

Medicaid programs increasingly finance competing, capitated managed care plans rather than administering fee-for-service (FFS) programs. We study how the transition from FFS to managed care affects high- and low-cost infants (blacks and Hispanics, respectively). We find that black-Hispanic disparities widen-e.g., black mortality and preterm birth rates increase by 15 percent and 7 percent, respectively, while Hispanic mortality and preterm birth rates decrease by 22 percent and 7 percent, respectively. Our results are consistent with a risk-selection model whereby capitation incentivizes competing plans to offer better (worse) care to low- (high-) cost clients to retain (avoid) them in the future.