Public Insurance Expansions Crowd Out Private Health Insurance

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For every 100 children who are enrolled in public insurance, 60 children lose private insurance.

The last two decades have seen large expansions in publicly funded health insurance programs in the United States. The share of people who are not elderly and who are enrolled in public insurance programs rose from 13.7 percent in 1984 to 17.8 percent in 2004. The fraction of the non-elderly without health insurance also rose, from 13.7 percent to 17.5 percent. Some researchers feel that the increase in the number of uninsured shows that program expansions have been simply overwhelmed by the rapid rise in the proportion of people who are uninsured. Others point out that the share of non-elderly people with private insurance fell from 70.1 percent to 62.4 percent during the same period. They suggest that the fall in private insurance occurred because public insurance "crowded-out" private insurance as the expansions of subsidized public programs encouraged people at the margin to switch from private arrangements to public ones.

In Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance? (NBER Working Paper No. 12858), co-authors Jonathan Gruber and Kosali Simon extend the literature on crowd-out by addressing family as well as individual eligibility and by using a variety of techniques to create robust estimates of crowd-out for the eligibility expansions that occurred between 1996 and 2002.

They find that there is considerable crowd-out associated with these recent expansions of public insurance. Their estimates suggest that for every 100 children who are enrolled in public insurance, 60 children lose private insurance. They also find that anti-crowd-out provisions, like waiting periods and cost-sharing, have increased crowd-out, apparently because the number of uninsured who join the program falls faster than the number of privately insured who drop coverage to sign up.

The estimates use the 1996 and 2001 panels of the Survey of Income and Program Participation (SIPP). They are based on 405,389 observations and include information on family and individual characteristics, individual and family public program eligibility by state, employment, and data on state waiting periods and cost sharing. Simple tabulations of changes in enrollment by income group suggest that crowd-out ranges from 47 to 92 percent. Estimates using regression analysis suggest that when the dependent variable is individual coverage, crowd-out is modest, from 24 to 37 percent. When a measure of family eligibility is substituted for individual eligibility, crowd-out is more substantial, ranging from 61 to 68 percent. Adding additional statistical controls to account for differences in state insurance trends increases the estimate of crowd-out to 78 percent to 81 percent.

Given that states are beginning substantial new experiments in public coverage, the authors conclude that it is important to understand the extent to which the people targeted by the expansions view publicly subsidized insurance programs as substitutes for private insurance.

-- Linda Gorman