TY  - JOUR
AU  - Brown,Jeffrey R.
AU  - Finkelstein,Amy
TI  - The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10989
PY  - 2004
Y2  - December 2004
UR  - http://www.nber.org/papers/w10989
L1  - http://www.nber.org/papers/w10989.pdf
N1  - Author contact info:
Jeffrey R. Brown
Department of Finance
University of Illinois at Urbana-Champaign
515 East Gregory Drive
Champaign, IL 61820
Tel: 217/333-3322
E-Mail: brownjr@illinois.edu

Amy Finkelstein
Department of Economics
MIT E52-383B
50 Memorial Drive
Cambridge, MA 02142
Tel: 617/253-4149
Fax: 617/868-2742
E-Mail: afink@mit.edu
M2  - featured in NBER digest on 2005-07-01
AB  - We show that the provision of even incomplete public insurance can substantially crowd out private insurance demand. We examine the interaction of the public Medicaid program with the private market for long-term care insurance and estimate that Medicaid can explain the lack of private insurance purchases for at least two-thirds and as much as 90 percent of the wealth distribution, even if comprehensive, actuarially fair private policies were available. Medicaid's large crowd out effect stems from the very large implicit tax (on the order of 60 to 75 percent for a median wealth individual) that Medicaid imposes on the benefits paid from private insurance policies. Importantly, Medicaid itself provides an inadequate mechanism for smoothing consumption for most individuals, so that its crowd out effect has important implications for overall risk exposure. An implication of our findings is that public policies designed to stimulate private insurance demand will be of limited efficacy as long as Medicaid continues to impose this large implicit tax.
ER  -