NCPA - National Center for Policy Analysis


August 28, 2007

Some researchers suggest that the fall in private insurance over the last two decades 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, says the National Bureau of Economic Research (NBER).

Researchers 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.

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.

Source: Linda Gorman, "Public Insurance Expansions Crowd Out Private Health Insurance," NBER Digest, August 2007; based upon: Jonathan Gruber and Kosali Simon, "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?" National Bureau of Economic Research, Working Paper No. 12858, January 2007.

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