Targeting with In-Kind Transfers: Evidence from Medicaid Home Care

Making a transfer in kind reduces its value to recipients but can improve targeting. We develop an approach to quantiffing this trade-off and apply it to home care. Using randomized experiments by Medicaid, we find that in-kind provision significantly reduces the value of the transfer to recipients while targeting a small fraction of the eligible population that is sicker and has fewer informal care-givers than the average eligible. Under a wide range of assumptions within a standard model, the targeting benefit exceeds the distortion cost. This highlights an important cost of recent reforms toward more flexible benefits. (JEL D82, H51, H75, I18, I38)