Medicaid to Replace Private Insurance Under Health Reform

When members of Congress talk about how many people are insured by such programs as Medicaid and S-CHIP they usually imply that the beneficiaries would have otherwise been uninsured. But a body of research by (such pro-Obama Care supporters as) Jon Gruber (MIT), David Cutler (Harvard) and even the Congressional Budget Office estimates that public insurance is mainly crowding out private insurance. In other words, people stop paying private premiums when government insurance is offered to them for free. A new study by Steven Pizer and colleagues estimates even higher crowd out rates than previous estimates when the new health reform law increases eligibility for Medicaid from 100% to 133% of poverty:

We find that Medicaid eligibility expansion will have relatively small effects on the number of uninsured, with about four fifths of the public expansion crowding out private coverage.

Why is this important? Because a large burden will be shifted from the private sector to taxpayers with very little gain in return.

HT to Austin Frakt.

Comments (5)

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  1. Vicki says:

    The last line in your post says it all: We (the taxpayers) get stuck with a big bill and nothing socially useful comes of it.

  2. Devon Herrick says:

    Workers will migrate to where they can get the largest subsidy. Employers will speed the process along by dropping coverage when the majority of workers have access to subsidized coverage. This will be a problem not just for Medicaid, but also to insurance sold in the individual Exchange.

  3. Nancy says:

    Nobody (other than you guys) is pointing this out. I think it’s an outrage.

  4. Ken says:

    I believe the same point can be made about the Medicare prescription drug progam — which most Republicans voted for. 80% + of the elderly already had drug coverage. So most of the money we are spending just substitutes public dollars for private dollars — without getting seniors more drugs.

  5. This is not an unexpected outcome. When Medicaid eligibility creeps up to households with higher incomes, the rate of crowding out will become higher.

    But we also shouldn’t need high-quality, academic, studies like these to convince us. If the government made per capita welfare payments worth $20,000 anually and then increased them to $50,000 and them $75,000, and so on, wouldn’t more and more people drop out of the workforce and collect welfare instead?

    Health benefits are a type of income, so if the government replaces it with “free” income, we should expect crowding out. As I’ve written before, one of the problems is that most sources who write about “health insurance” bundle private insurance, Medicare, and Medicaid all into that basket. Medicaid should not be classified with private insurance, any more than welfare should be classified with employment income. If you do so, you can rest assured that the government will “solve” the problem by increasing welfare dependency.