Public insurance expansions and crowd out of private coverage

The extent to which persons enrolling in new public insurance programs substitute the public coverage for private insurance is of concern to policy makers.

To look at the extent of the substitution resulting from new state programs that cover a broad base of the low-income population and to look at the responses of both families and employers.

The March CPS for 1991-1993 and 1997-1998 were used to study the responses of families. Two large national surveys of employers with information about the employment-based system in 1993 and 1997 were used to study employer responses. The analysis looks at changes in coverage and employer offer rates before and after the public insurance expansions in selected states and compares these changes to those in a control group in states without expansions.

Coverage by private insurance for low-income persons in states with expansions fell by more than expected based on the control states, indicating some substitution of public coverage for private insurance. Changes in employee coverage in own-employer sponsored insurance accord with this result. The expansion of public insurance has a bigger effect on employer offer decisions when a large share of its workers is eligible for public programs.

The results show a significant substitution of public insurance for private coverage in the expansions studied. However, endogeneity of state expansion policies and possible confounding with other policy changes temper the conclusions. More recent public insurance expansions as part of the State Childrens' Health Insurance Program have adopted a range of methods to limit crowd out. Future research is needed to evaluate whether these procedures and rules have succeeded.