Crowding out private insurance: Medicaid's medically needy program

This paper examines the extent to which public health insurance crowds out purchases of private insurance. Specifically, the effect of Medicaid's medically needy program on the probability that an individual will buy private insurance is investigated. Evidence presented here suggests that the presence of the medically needy program and more specifically, its relative generosity significantly reduces the likelihood that an individual will purchase private insurance. For individuals living in more generous medically needy states, the crowd out is particularly evident for individuals whose family incomes lie closest to the eligibility thresholds. This does suggest that expansions of public coverage not only provide a "net" for the targeted uninsured, but also may attract individuals into the "net" who would otherwise seek private insurance. Such crowding out has serious implications for the net benefits of such public expansions.