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ECONOMY AND MANAGEMENT.

HOW HAS THE EXPANSION OF ELIGIBILITY FOR PUBLIC HEALTH INSURANCE AFFECTED THE SECTOR?

Aug 11, 2023

Responsible researcher: Bruno Benevit

Original title: Does Public Insurance Crowd Out Private Insurance

Authors: David M. Cutler and Jonathan Gruber

Intervention Location: United States

Sample Size: 266,421 children, 549,472 adults

Sector: Healthcare

Variable of Main Interest: Health Insurance Coverage

Type of Intervention: Eligibility; Insurance coverage amount

Methodology: Instrumental Variable

Summary

The broad coverage of health services is the target of great demand and public interest. At the same time, public managers are faced with the challenge of identifying the negative consequences of applying subsidies in this market. Medicaid program's eligibility expansion policy on the program's coverage and private health insurance coverage. The study also looks at how insurance offered by employers has been affected. Adopting the instrumental variables methodology, the authors identify that the policy of expanding eligibility caused an increase in the use of the program and in total coverage, but this movement was accompanied by a reduction in coverage and in the uptake of health insurance provided by employers.

  1. Policy Problem

Offering free public insurance services has consequences throughout the market as it changes its offer structure. Theoretically, Medicaid is a very valuable policy, offering broad coverage and charging beneficiaries little or no fees. However, the value of the program is subsidized and, therefore, lower than that of private insurance. Because of low reimbursement rates, providers are often reluctant to treat patients through Medicaid (Currie et al. , 1995). The cost of Medicaid may be low due to difficulties in transitioning to the private sector for pre-existing medical conditions. Medicaid enrollment may also be impacted due to stigma associated with public programs or bureaucracy-related enrollment difficulties.

Subsidized public health insurance policies provide a homogeneous basket of services to their beneficiaries. Therefore, individuals who opt for Medicaid give up the option of supplementing their access to health services. This dynamic implies that individuals who place little value on this type of service join the program, while individuals willing to pay more for the quality and quantity of these services opt for private insurance.

In this sense, the challenge for policymakers lies in verifying the effects caused by the expansion of the Medicaid on the population's health insurance coverage, and extends to identifying the mechanisms that explain these potential impacts on the sector.

  1. Implementation and Evaluation Context

The expansion of the Medicaid occurred with the aim of expanding coverage of the poorest population. In the period prior to the expansion, the eligibility criteria were excessively restrictive, covering only individuals in situations of extreme poverty and/or families with a single-parent structure. In 1987, the percentage of children and women of reproductive age eligible for the program were 17.8% and 21.1%, respectively. Five years after the program began expanding, these numbers reached 27% and 44.9%, respectively. Additionally, nearly 90% of private health insurance in the US was provided by employers.

The objective of this article was to analyze how the expansion of Medicaid impacted the health insurance coverage of the population in the USA. Observing the differences in terms of services and incentives between the public and private health insurance sectors, the study verifies possible repercussions in both sectors, in addition to checking whether there has been an increase in the number of uninsured people. Additionally, the authors perform an analysis of how the expansion of Medicaid affected the supply and uptake of private insurance offered by employers.

  1. Policy/Program Details

The Medicaid 's eligibility for pregnant women and children was historically linked to participation in the Aid for Families with Dependent Children - AFDC program, an aid policy for families with dependent children focused on single-parent families. This link resulted in restrictions on access to the program due to to the AFDC program membership criteria. At the same time, there were several other state programs aimed at relaxing the socioeconomic criteria for eligibility for the Medicaid program. However, family structure criteria still made the policy restricted to individuals in situations of extreme poverty.

With the goal of bringing insurance coverage to the broader low-income population, the link between AFDC coverage and Medicaid eligibility was gradually weakened for pregnant women and children. According to Currie & Gruber (1994), these measures promoted the expansion of eligibility for the Medicaid , substantially increasing the maximum family income limit to qualify for the program and eliminating restrictions for families other than single parents. Children born after September 30, 1983 in poverty were fully covered, regardless of family composition. Subsequently, new measures in 1992 expanded the coverage obligation to pregnant women and children under 6 years of age and relaxed the poverty criteria adopted by states.

  1. Method

Surveys (CPS) database from March 1988 to 1993. The CPS is the largest nationally representative annual survey of demographic data covering information about insurance coverage and insurance eligibility. Medicaid program . The sample used contains 815,893 observations, of which 266,421 are children (between 0 and 18 years old), 194,139 are women of reproductive age (between 15 and 44 years old), and 355,333 are from the remaining group of adults. The study also employed the Employee Benefits Supplement for the May 1988 and April 1993 CPS data.

Controlling possible biases in the estimations is essential and imposes certain precautions with the variables used in the model. Children need to be categorized by age given the differences in demand and eligibility between newborn children and others. Furthermore, the use of the direct eligibility variable is not appropriate due to the program's eligibility criteria involving family demographic and socioeconomic characteristics, private coverage for low-income workers, state differences regarding expansion, and differences between the periodicity of the grant of eligibility in relation to the variables used.

To solve problems with endogeneity, the authors adopt instrumental variables (IV) correlated with eligibility for the Medicaid . The first IV consists of individual eligibility (IV_eligibility) and is calculated considering eligibility averages at the state level through national random samples. The second IV is created to represent the relative dollar value of family health expenses covered by Medicaid ( IV_%Dollars ). Additionally, the second instrumental variable is divided into two parts, representing the individual's coverage value ( IV_%Dollarsproprio ) and the coverage value of the rest of the family members ( IV_%Dollarsfamilia ).

Instrumental variables are used to measure the impact of expanding Medicaid eligibility on the outcome variables analyzed. The first instrumental variable measures the effect of eligibility for Medicaid , while the others measure the effect of the program's health expenditure coverage amount. The outcome variables defined were: (i) coverage of the program itself, (ii) private insurance coverage, and (iii) the uninsured rate. The models also considered covariates of demographic characteristics, including sex (children), race, marital status, number of workers in the household, sex of head of household, and binary variables of age, state, and year.

All analyzes use CPS data. Medicaid program eligibility for the group of children and women of reproductive age on the outcome variables: (i) Medicaid , (ii) coverage by private insurance plans, and (iii) no health insurance coverage. The second analysis incorporates data from the CPS Employee Benefits Supplement IV_%Dollars for all workers between 24 and 64 years old on outcome variables: (i) insurance coverage offered by employers, (ii) offers of insurance by employees, and (iii) employees' adherence to insurance offered by employers. The third analysis observes the impact of the variable IV_%Dollars for men between 24 and 64 years old on the outcome variables: (i) insurance coverage offered by employers, (ii) individual insurance coverage, and (iii) insurance coverage of dependents. The fourth analysis verifies the effect of the variables IV_%Dollarsproprio and IV_%Dollarsfamilia on the outcome variables: (i) Medicaid , (ii) coverage by private insurance plans, and (iii) no health insurance coverage. Finally, the authors present the impact on overall coverage with adjustments for conditional coverage, accounting for non-continued use of the Medicaid program.

  • Main Results

In relation to the first analysis, the results showed a high increase in the coverage of children by the Medicaid , but accompanied by reductions in private coverage and the absence of coverage, both reactions as expected. The results for women of reproductive age do not indicate an increase in Medicaid , but they demonstrate a reduction in private coverage and an increase in the absence of coverage in proportional magnitudes.

Estimates from the second analysis demonstrated that the dollar value of family coverage provided by Medicaid significantly reduced private insurance coverage for workers ages 24 to 64. Furthermore, the lack of effect on the offer of insurance by employers and the reduction in uptake of private insurance offers indicated that the reduction in private insurance coverage occurred at the will of employees.

The results of the third analysis indicated that the expansion of eligibility for children caused changes in the type of private coverage demanded, while there was an increase in individual coverage for adult men and a reduction in coverage for dependents. The results of the fourth analysis demonstrated that increases in the dollar value of family coverage caused an increase in Medicaid for children and women of reproductive age. However, both groups saw reductions in private insurance coverage resulting from the value of self- and family coverage.

Considering the estimates of the effect of an increase in adherence to Medicaid (800 thousand people) and a reduction in the contracting of private insurance (700 thousand people), the estimates pointed to relative stagnation in total coverage for women. Medicaid coverage Medicaid coverage for women increased by 900 thousand users. The authors estimated this result by considering the annual cost of women of reproductive age with services related to pregnancy. Similarly for children, there was an increase of 1.5 million in Medicaid , 400 thousand conditionally, and a reduction of 600 thousand in private coverage. In total, the results found indicate that there was a total increase of 3.5 million individuals covered by Medicaid and a reduction of 1.7 million in private coverage.

  1. Public Policy Lessons

This study analyzed the impacts of the expansion of Medicaid eligibility experienced between the late 1980s and early 1990s. The evidence found in this study indicated that the increase in Medicaid came at the cost of reduced insurance coverage private services for all segments of the population.

The children's segment showed the greatest convergence towards Medicaid , in accordance with the focus established by the program's eligibility flexibility policies. Medicaid coverage for women and children provide important information about the use and/or knowledge of eligibility, indicating that most women benefit from the program only at the end of pregnancy.

Although all population segments reduced their private insurance coverage, there was no reduction in the offer of these services by employers, indicating that this drop occurred at the employees' option. In total, estimates from this study indicate that Medicaid was responsible for 17% of the decline in private health insurance coverage observed from 1987 to 1992.

References

Currie, J. and Gruber, J. (1994), Saving Babies: The Efficacy and Cost of Recent Expansions of Medicaid Eligibility for Pregnant Women , No. w4644, National Bureau of Economic Research, Cambridge, MA, p. w4644.

Currie, J., Gruber, J. and Fischer, M. (1995), “Physician Payments and Infant Mortality: Evidence from Medicaid Fee Policy”, The American Economic Review , Vol. 65 No. 2, pp. 106–111.