Unintended consequences: heath insurance

There is a new paper out in the Journal of Health Economics by Jonathan Grubera and Kosali Simon on Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?. The abstract reads,

Ten years ago, Cutler and Gruber [Cutler, D., Gruber, J., 1996. Does public health insurance crowdout private insurance? Quarterly Journal of Economics 111, 391–430] suggested that crowd-out might be quite large, but much subsequent research has questioned this conclusion. Our results using improved data and methods clearly show that crowd-out is still significant in the 1996–2002 period. This finding emerges most strongly when we consider family level measures of public insurance eligibility. We also find that recent anti-crowd-out provisions in public expansions may have had the opposite effect, lowering take-up by the uninsured faster than they lower crowd-out of private insurance.

So expanded public insurance entitlements will reduce private insurance coverage. Grubera and Simon results show that, at least for the US, crowd-out is significant. Their estimates suggest that crowd-out is on the order of 60%: private insurance coverage is reduced by 60% as much as public insurance coverage rises when there are public eligibility expansions. Its this substitution of public for private insurance really what was intended when public insurance coverage was expanded? One would think that the idea was to expand actual coverage not just cause a substitution effect.

(HT: Division of Labor)