Commentary

Medicaid Is Behind the Decline in Private Health Coverage

AROUND this time of year, the health policy world goes through a kind of ritual.

Every August, the Census Bureau releases estimates of how many Americans have health insurance and where they obtain it. Every August, some health policy wonks respond by bemoaning that the number of Americans without health coverage is increasing, “even though” government programs are expanding. Next, they bemoan the decline in private coverage, and praise Medicaid — the government program to the poor — for “picking up the slack.” And every August, many reporters uncritically quote this storyline, sometimes even repeating it as fact.

But the ritual is a con. Wonks know full well that expanding Medicaid causes private coverage to decline, and can even increase the number of people counted as “uninsured.” But they also know that portraying Medicaid as the hero in this narrative may build support for expanding the program.

A recent Census Bureau report showed the persistence of two simultaneous trends that spell trouble for America’s already troubled health care system. The first is that the share of Americans without insurance continues to rise slowly. The second is a slow shift in sources of coverage from private to government insurance.

And so began the ritual. One trade publication, Modern Healthcare, ran the headline, “Uninsured total up, even as government rolls also grow.” A story in the Chicago Tribune noted the drop in private coverage and opined, “Government health programs have been picking up the slack.” A spokeswoman for the advocacy group Families USA told the Detroit Free Press, “We would have seen a lot more uninsured if we didn’t have that Medicaid safety net out there,” and credited Medicaid with having “cushioned the impact.” The president of the Kaiser Family Foundation made similar comments in the Washington Post, which, in an editorial, also opined, “Most of this slack has been taken up by Medicaid…”

Like those articles, most coverage of the Census Bureau data treats the decline of private coverage and the growth of Medicaid as if they were separate phenomena. But most analysts know that Medicaid expansions, of which there have been many, don’t just “pick up the slack.”

Many studies have established that as Medicaid eligibility expands, it “crowds out” private coverage. In essence, “crowd out” means that some employers stop providing health benefits when Medicaid becomes available to low-wage employees or their dependents.

It also means that even if workers are offered private coverage, some choose Medicaid instead. USA Today reports, “Many workers choose Medicaid over insurance offered by their employers because it is less expensive. Wal-Mart workers pay $273 a month for the company’s family medical coverage and get fewer benefits than Medicaid.”

Sometimes employers even encourage workers to enroll in Medicaid. One survey by the Employee Benefit Research Institute found one in four employers give low-wage workers information on how to enroll in Medicaid.

The Robert Wood Johnson Foundation, a strong supporter of Medicaid, examined 22 crowd-out studies. More than half found evidence of crowding out, and some even found that enrollment growth in public programs was completely offset by reductions in private coverage. The researchers concluded that crowding out “seems inevitable.”

Some might say, “Isn’t private coverage declining because the cost is rising?” Yes. But here again, Medicaid contributes to the problem.

Medicaid actually increases the cost of private care and coverage. A study by the National Bureau of Economic Research found that Medicaid increases prescription drug prices for private payers by 13 percent. And as private insurance pools shrink, insurers are less able to pool risk, which can increase the cost of private coverage even more.

As private coverage erodes, some of those who lose it end up covered by Medicaid. Others go uninsured.

Many speak of Medicaid as if it merely catches people who fall off the economic ladder. But it also shakes that ladder, which causes more people to fall.

Health policy wonks need to come clean about the role Medicaid plays in eroding private health insurance, while reporters need to make sure they don’t end up delivering someone’s ideological spin.

Only when the truth about the decline of private insurance comes to light will we be able to have a debate about what that means, and how to move forward.

Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It