Opinion: Daily Journal

Crowd-Out, The Briar Patch

RALEIGH – Crowd-out is the briar patch of health insurance crypto-socialists.

Yes, I suppose I am speaking in code, but it isn’t that hard to decipher. “Crowd-out” in this context refers to a phenomenon in which expansions of government health-insurance programs such as Medicaid do not reduce the ranks of the uninsured as much as advertised, because a substantial number of the new enrollees would have been insured anyway. The “briar patch” is, of course, a reference to the clever ruse that Brer Rabbit uses to escape the clutches of Brer Fox and Brer Bear. And a “crypto-socialist” simply means someone who advocates public ownership and/or control of a means of production, in this case health insurance, but isn’t always or usually explicit about the goal.

Arguments about the crowd-out effect of government health insurance can get rather heated, as I have discovered through personal experience. But if you think about it, it’s the lack of a crowd-out effect that would be profoundly surprising. If families are bearing the cost of a health plan for their kids and then become eligible for free or highly subsidized health insurance, it is an entirely rational decision to take the gift. The only real debate should be how large the crowd-out effect is – which is another way of saying how much it will cost the taxpayers per uninsured person served. If the crowd-out effect is large, 50 percent or higher, then it will cost much more than advertised to reduce the ranks of the uninsured in that way.

Part of the problem here is a lack of agreement about a fundamental issue: the coverage status of families with modest but non-poor incomes. Many advocates of programs such as Health Choice or the proposed N.C. Kids Care say that these programs are intended to cover families whose incomes are too high to qualify for Medicaid but too low to afford private health plans. That’s not really true. Most families whose incomes make them eligible for these programs are already insured. They purchase health plans from their employers, either explicitly with cash or implicitly as a substitute for cash wages, or they purchase coverage in the individual market, which is primarily served by Blue Cross.

A related analytical problem is how to model families whose incomes rise over time. Most families do not stay perpetually in poverty. As adults in the family add work hours, gain useful skills or experience, or marry, their household incomes rise. Previously eligible for Medicaid coverage, they are then faced with several options. Some go into an employer-based plan. Some buy individually. Some go without. The point is, you can’t examine the crowd-out issue by looking only at families who actually drop out of a private health plan to accept a government program (be it an expanded Medicaid program or Health Choice). You also have to project what happens to families who exit Medicaid in the future.

At the national level, much of the debate about crowd-out centers on the work of Jonathan Gruber, an economist at MIT and the co-author of a couple of key studies. The first was published in 1996, and has been often cited or attacked since then. The second, written with Kosali Ilayperuma Simon of Cornell, came out early this year. I think that the Gruber-Simon paper, in particular, is carefully constructed and persuasive. “Our results clearly show that crowd-out is significant; the central tendency in our results is a crowd-out rate of about 60 percent,” they write. “This finding emerges most strongly when we consider family-level measures of public insurance eligibility.” Others disagree. I’d recommend reading for yourself (you may have to pay).

Here in North Carolina, I think the evidence also indicates that previous legislative actions have induced many families of modest means not to enroll in private plans but instead to secure free or low-cost government insurance, thus increasing the cost to taxpayers without dramatically reducing the ranks of the uninsured. Legislators should certainly consider other alternatives that pose less risk and promise more reward.

So why did I use the imagery of the briar patch? Because some advocates of expanding government health insurance don’t really mind the crowd-out effect. They welcome it. They sincerely believe that socialized health insurance is better that a competitive market for health plans (even a market with subsidies for the poor and chronically ill). If crowd-out helps to unravel private health arrangements, all the better in their eyes.

As it happens, by the way, there is another way to decode the opening statement of today’s column. An anagram of “crowd-out briar patch” is “a curt birchwood part.” The birch is the national tree of Russia, where socialism received one of its most prominent, telling, and destructive try-outs and where government bureaucrats were known for their rudeness to average citizens (and their contrasting obsequiousness to the powerful elite). Full-blown socialism in health insurance wouldn’t turn out any better.

Hood is president of the John Locke Foundation.