Health Care Costs and Financing

Medicaid programs provide a safety net for the uninsured, but they also crowd out private insurance

The rate of workers who accepted employment-based health insurance fell from 88 to 80 percent between 1987 and 1996, while the number of workers covered by Medicaid who had been offered employment-based coverage increased from 5 to 25 percent. Public health care programs like Medicaid cover people who otherwise would not have health insurance, either through direct health care services, subsidies to health care providers, or direct health insurance. In this way, they serve as a safety net for the uninsured. On the other hand, they also crowd out private health insurance coverage, especially for low-income individuals who prefer "free care" like that provided by public hospitals, concludes a study supported by the Agency for Healthcare Research and Quality (HS07665).

Kevin N. Rask, Ph.D., of Colgate University, and Kimberly J. Rask, M.D., Ph.D., of Emory University School of Medicine, examined the impact of reimbursement funds and Medicaid on insurance choice. They based their analysis on the 1987 National Medical Expenditure Survey of a nationally representative sample of 15,000 households; the 1988 American Hospital Association annual survey; and the 1989 and 1992 National Health Interview Surveys. They found that the effect of public hospitals on private health insurance coverage differed across income groups, and that there was no effect on the likelihood of private coverage for those at the highest and lowest ends of the income distribution. Interestingly, the presence of a public hospital in the respondent's county decreased the likelihood of Medicaid coverage.

Acquiring and maintaining Medicaid coverage requires enrollment and repeated eligibility verifications. The availability of a public hospital may make it less urgent to enroll in Medicaid and less likely that eligible individuals will pursue enrollment unless they have an acute need for medical care. Also, study simulations suggested that public hospitals crowded out 11 percent of low-income people and 4 percent of middle-income individuals who otherwise would be privately insured.

Less restrictive Medicaid eligibility standards were associated with less private insurance coverage in all income groups. This suggests that potentially eligible individuals may do without private insurance, anticipating the availability of public coverage if medical care is needed, note the researchers. They conclude that the increased costs associated with forgoing private insurance and instead relying on public services must be weighed against the benefits derived from providing expanded health care to those with no other option.

More details are in "Public insurance substituting for private insurance: New evidence regarding public hospitals, uncompensated care funds, and Medicaid," by Drs. Rask and Rask, in the Journal of Health Economics 19, pp. 1-31, 2000.

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