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American Economic Review: Vol. 98 No. 3 (June 2008)

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The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market

Article Citation

Brown, Jeffrey R., and Amy Finkelstein. 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market." American Economic Review, 98(3): 1083-1102.

DOI: 10.1257/aer.98.3.1083

Abstract

We show that even incomplete public insurance can crowd out private insurance demand. We estimate that Medicaid could explain the lack of private long-term care insurance for about two-thirds of the wealth distribution, even if no other factors limited the market's size. Yet Medicaid provides incomplete consumption smoothing for most individuals. Medicaid's crowd-out effect stems from the large implicit tax (about 60-75 percent for a median-wealth individual) that Medicaid imposes on private insurance. An implication is that public policies designed to stimulate the private insurance market will have limited efficacy as long as Medicaid's large implicit tax remains.

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Authors

Brown, Jeffrey R. (U IL)
Finkelstein, Amy (MIT)

JEL Classifications

G22: Insurance; Insurance Companies
I18: Health: Government Policy; Regulation; Public Health
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs


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