More on Medicaid Crowd-Out

As I’ve previously discussed, one key issue in the recent debate over expanding North Carolina’s Medicaid program under the Affordable Care Act involved estimating how many new Medicaid enrollees would truly have been uninsured without it. For every new Medicaid enrollee who would otherwise have been privately insured or paid their medical bills out of pocket, taxpayers incur new costs without a commensurate gain in health care access or needed services delivered.

Admittedly, there are some lawmakers and activists who don’t really care about the crowd-out issue. Their goal is single-payer, government-monopoly health insurance. Crowding out private health arrangements is a virtue to their way of thinking, not a vice. Knowing others don’t see it the same way, however, they tend to skirt the issue or downplay its significance.

For the rest of us, however, crowd-out is a major flaw of health care bills that create new government entitlements or expand existing ones. We see Medicaid as a safety-net program only, a means of providing truly destitute people a baseline of health services without ensnaring them in a cycle of lifetime dependency or giving state government too much power over the practice of medicine and private markets for health care services.

I’ll say right off the bat that if you are looking for a hard number on Medicaid crowd-out, you are likely to be disappointed. The issue is complex. Among low-income households, health insurance status is fluid. People move back and forth among several different categories, including uninsured, covered by an employer-based plan, covered in the individual market, and covered by government programs such as Medicaid and Medicare.

In its report endorsing Medicaid expansion, the N.C. Institute of Medicine reportedly assumed a crowd-out rate of about 25 percent. In a letter to the Raleigh News & Observer justifying his chamber’s rejection of Medicaid expansion, Senate leader Phil Berger cited a 2011 study indicating that as many as 80 percent of new Medicaid enrollees under Obamacare would otherwise have been insured.

Obviously, 25 percent and 80 percent are wildly dissimilar estimates. Based on current estimates of insurance status and past experience with Medicaid and the Child Health Insurance Program, I will suggest that the more likely outcome would be somewhere in between.

Oddly, some people who ought to know better claim that virtually no poor or near-poor households have private health insurance, so the lower bound of 25 percent is itself a generous crowd-out estimate. They should familiarize themselves with the standard U.S. Census Bureau measures of health-insurance status. Census does two different estimates of insurance status for low-income households: one for those at or below the poverty line and another for those between 100 percent and 125 percent of poverty-line income. Here’s what they show:

• Among the population of nonelderly poor who aren’t already enrolled in Medicaid or other government plans, about 61 percent are uninsured vs. 39 percent in some kind of private plan.

• Among the nonelderly population with incomes between 100 percent and 125 percent of poverty who aren’t already enrolled in Medicaid or other government plans, about 53 percent are uninsured vs. 47 percent in some kind of private plan.

While Census doesn’t provide a separate count for households between 125 percent and 138 percent of poverty (who would also have been eligible for the Medicaid expansion), other evidence suggests that the number of privately insured individuals in this bracket exceeds the number of uninsured individuals.

Now, as I said, these data are tricky. Some people fit multiple categories over the course of a given year. Also, some uninsured people are relatively young and healthy, making only limited use of the health care system and paying cash for services rendered (i.e., they visit urgent care or minute clinics). They don’t fit the profile of uninsured that many people have in their minds – as either excluded from necessary medical care or obtaining “free” services at emergency rooms. Furthermore, not everyone newly eligible for Medicaid would have enrolled had North Carolina expanded it, at least not initially. That applies to both the potential crowd-out population and the uninsured.

Still, you can see why health policy experts who aren’t cheerleaders for the Affordable Care Act think the crowd-out effect will be somewhere in the 40 percent to 50 percent range – in the neighborhood of the crowd-out rate from many past Medicaid expansions.*

That’s bad enough.

Hood is president of the John Locke Foundation and a contributor to First in Freedom: Transforming Ideas into Consequences for North Carolina.

* By the way, keep in mind that to the extent Medicaid expansion results in a crowding-out of private coverage, that doesn’t really reduce the number of uninsured people who would otherwise enroll in Medicaid. The expansion is an entitlement – you are eligible if you meet the income guidelines, regardless of how many other people also join the program. You don’t take someone else’s place on the Medicaid rolls. So what really happens under a crowd-out scenario is that expansion will produce higher Medicaid caseloads and costs than proponents realize (or are willing to admit).