Insuring Low-Income Adults: Does Public Coverage Crowd Out Private?
Health Affairs
January/February 2002
by Richard Kronick and Todd Gilmer
"Among persons with income between 100 percent and 200 percent of FPL (federal poverty level), public coverage reduced the number of uninsured persons and crowded out some private insurance. The partial successes achieved by these programs should be kept in perspective: Even after program implementation, approximately 30 percent of low-income adults in the four states were uninsured."
"If expanded programs of subsidized insurance for low income adults are to greatly reduce the numbers of uninsured persons, they must be designed, implemented, financed, and marketed more successfully than were the programs we studied. Such programs have the potential to reduce private coverage, particularly as they are extended to persons with incomes above the federal poverty level. As has been discussed elsewhere, crowding out of private coverage will result in welfare-improving enhancements for low-income persons but does reduce the program's target efficiency. Given the pressing problems created by the existence of close to forty million uninsured persons, we think that designing programs to maximize participation should be an overriding policy goal. However, in a voluntary market programs that are attractive enough to enroll large numbers of uninsured persons inevitably will be attractive enough to enroll large numbers of persons who would have had private insurance in the program's absence."
Comment: This study demonstrated the important principle that programs of public insurance, such as Medicaid and S-CHIP, may "crowd out" private insurance. That is, these publicly funded programs for lower income individuals may displace health insurance coverage that is currently funded privately (albeit with tax advantages). For individuals with private coverage that shift into the public programs, the costs for this coverage is shifted to the taxpayers even though it does not result in a reduction in the rolls of the uninsured.
There is a much more important principle which this study demonstrates. These programs of public insurance, Medicaid and S-CHIP, after fully implemented, still exclude significant numbers of low income individuals. Further, since states must contribute a component to the funding of these programs, during difficult economic times they are subjected to the guillotine of the budget cutters. Since they are chronically under-funded anyway, these program cuts can be disastrous for our health care delivery system.
There are four lessons here:
(1) Public insurance programs for low income individuals partially miss the target population, insuring the already insured, at the expense of taxpayers.
(2) A program of social insurance should have separate sources of funding that are not admixed with the general budget that is highly subject to political machinations. Although the status of the economy will affect delegated funding for a health care program, problems with funding should not be compounded by injecting the potential for a greater element of political chicanery.
(3) Existing public insurance programs fail to patch many of the holes in the health care safety net, leaving unacceptable voids in health care coverage.
(4) Incremental approaches, most of which include some form of public programs for low income individuals, will never provide the comprehensiveness and equity that is missing from our system. Only fundamental restructuring of health care funding can accomplish that. We desperately need a universal program of social insurance.