The Effect of Medicaid Reimbursement Policy on Downstream Medicaid Spending: The Case of Cochlear Implants

Anirban Basu, Norma Coe, Sungchul Park

NBER Disability Research Center Paper No. NB 14-09
Issued in September 2014

While technological advances show great promise to improve individual functioning among individuals with various disabilities, the direct costs of these treatments are often substantial, and not always fully covered by insurance. This project focuses on one particular technological advance: cochlear implants for treating deafness, a listing condition for federal disability programs. Cochlear implants are very effective at improving hearing, especially among young children, and have been shown to improve a variety of measures of quality of life. However, Medicaid does not fully cover implantation, and there exists state-level variation in reimbursement policy which has been shown to influence the timing of receiving the device (Lester et al. 2011). We exploit this regional variation and use instrumental variable techniques to estimate the causal relationship between getting a cochlear implant and cumulative three-year Medicaid expenditures. This work highlights the potential for changing Medicaid reimbursement policy to achieve significant savings, as well as improve functioning at the individual-level.

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