Behavioral Economics and Health Policy: Understanding Medicaid's Failure

Document Type



The most up-to-date version of this piece can be found in the Duke Law Scholarship


This Article employs a behavioral economic analysis to understand why Medicaid has failed to improve the health outcomes of its beneficiaries. It begins with a formal economic model of health care consumption and then systematically incorporates a survey of psychosocial variables to formulate explanations for persistent health disparities. This methodology suggests that consulting the literature in health psychology and intertemporal decision theory - empirical sources generally excluded from orthodox economic analysis - provides valuable material to explain certain findings in health econometrics. More significantly, the lessons from this behavioral economic approach generate useful policy considerations for Medicaid policymakers, who largely have neglected psychosocial variables in implementing a health insurance program that rests chiefly on orthodox economic assumptions.

The Article's chief contributions include an expansion of the behavioral economic approach to include a host of variables in health psychology, a behavioral refinement of empirical health economics, a behavioral critique of Medicaid policy, and a menu of suggested Medicaid reforms.

Date of Authorship for this Version

September 2005