CHIP Medicaid

Do Medicaid Expansions Crowd Out Private Health Insurance?

According to Hamersma and Matthew Kim (2013), the answer is no.

The authors use data from the 1996, 2001, and 2004 panels of the Survey of Income and Program Participation (SIPP). This data is supplemented with state-level information on Medicaid income eligibility rules. The authors classify each person as either: holding no insurance, private insurance, Medicaid, or both Medicaid and private insurance. About 10 percent of Medicaid recipients in the sample also have private insurance.

The authors run an OLS regression of eligibility on insurance status. The regressions model take-up (using any Medicaid insurance as the dependent variable), crowd-out (using private insurance as the dependent variable) and the overall change in insurance (any insurance as the dependent variable). Eligibility, however, is an endogenous variable; people may alter their income in order to receive Medicaid benefits. To address this problem, the authors instrument for Medicaid eligilbity using the fraction of the rest of the population (outside one’s own state) who would be eligilbe for Medicaid under the state’s Medicaid rules.

The problem with this approach, is that eligibility is not a great predictor of Medicaid enrollment. In the authors’ sample, about 40 percent of Medicaid recipients in our sample do not, by our imputation, appear to be eligible. Thus, the authors use an alternative specification that defines eligibility using the Medicaid eligilbity as a share of the federal poverty level for each state-month-year-family size cell.


The authors find the following results:

First, the eligibility expansions result in significant increases in Medicaid participation; a “typical” expansion increases Medicaid participation by about four percent of baseline coverage rates. Second, the participation effect is larger for lower initial thresholds and the effect decreases as Medicaid thresholds increase. Third, we find no statistically significant evidence of crowd out regardless of initial threshold level.

Healthcare Economist’s Take

From the authors’ analyses, it does not appear that Medicaid crowds out private health insurance. At first glance, this finding does not make a lot of sense. If Medicaid and private insurance are substitutes, workers could demand higher wages, drop their private insurance, and instead take up Medicaid. It is true that risk aversion to income fluctuations may make Medicaid less attractive, but still there should be some crowd-out.

One reason why crowd-out does not exist is that Medicaid and private insurance really are not substitutes. Medicaid reimbursement levels are generally much lower than private insurance. Thus, many Medicaid beneficairies have a difficult time finding a doctor who accepts Medicaid reimbursement. Further, the doctors who accept only private insurance may be of higher quality than those who accept Medicaid. Thus, this finding suggest that crowd out may not be a problem, but also that Medicaid is not truly a substitute for private insurance.



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