Costs and Benefits of In-Kind Transfers: The Case of Medicaid Home Care Benefits
Many large government programs provide benefits in kind as opposed to in cash. Providing benefits in kind potentially distorts decisions and leads to a deadweight loss if recipients value the benefits less than a cost-equivalent cash transfer. Yet providing benefits in kind may have some offsetting benefits, especially in terms of improving the targeting of benefits to desired beneficiaries. We complete what is to our knowledge one of the first empirical studies of the costs and benefits of providing transfers in kind as opposed to in cash. We focus on the case of the US Medicaid program’s provision of in kind home health care benefits. Three state Medicaid programs completed randomized experiments that converted the usual in-kind benefits into cash benefits for a randomly-selected subset of benefit recipients. We use the results of these experiments together with a variety of other evidence to estimate the costs and benefits of providing Medicaid home care benefits in kind. We find that in the case of Medicaid home care benefits, both the costs and benefits of providing transfers in kind as opposed to in cash are large. This suggests that alternative targeting mechanisms, if available, have the potential to significantly increase efficiency relative to traditional Medicaid policy.
- In-kind provision of home care benefits significantly distorts the use of formal and informal care.
- In-kind provision significantly improves program targeting.
- In-kind provision appears to have little effect on tax system efficiency and moral hazard in the context of the Samaritan’s Dilemma.
- The measurable benefits of in-kind provision appear to be of a similar size to the consumption distortion cost.
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Paper IDWP 2013-294