Has the Affordable Care Act Affected Health Care Efficiency?

Abstract

We utilize health care input and output data to evaluate how state-level efficiency in health care has changed in the wake of the Affordable Care Act (ACA). We use a Stochastic Frontier model to estimate annual measures of technical and cost efficiency before, and after, the implementation of the ACA. Results show that following the ACA, states’ technical efficiency improved and converged across states. However, cost efficiency declines suggest health outputs rose by a proportionally smaller margin than health care costs. Plausible explanations are a lack of substitutability between emergency care and preventive care, the presence of moral hazard in health care markets, and declining marginal returns to increased health care expenditures. The above pattern of results is repeated with greater magnitude for states that expanded Medicaid coverage. The results suggest the ACA represents a package of reforms that present a trade-off between technical and cost efficiency.