Medicaid Is Behind the Decline in Private Health Coverage

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AROUND this time of year, the healthpolicy world goes through a kind ofritual.

Every August, the Census Bureaureleases estimates of how manyAmericans have health insurance andwhere they obtain it. Every August,some health policy wonks respond bybemoaning that the number ofAmericans without health coverage isincreasing, "even though" government programs are expanding. Next,they bemoan the decline in private coverage, and praise Medicaid — thegovernment program to the poor — for "picking up the slack." Andevery 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 Medicaidcauses private coverage to decline, and can even increase the number ofpeople counted as "uninsured." But they also know that portrayingMedicaid as the hero in this narrative may build support for expandingthe program.

A recent Census Bureau report showed the persistence of twosimultaneous trends that spell trouble for America’s already troubledhealth care system. The first is that the share of Americans withoutinsurance continues to rise slowly. The second is a slow shift in sourcesof coverage from private to government insurance.

And so began the ritual. One trade publication, Modern Healthcare, ranthe headline, "Uninsured total up, even as government rolls also grow."A story in the Chicago Tribune noted the drop in private coverage andopined, "Government health programs have been picking up the slack."A spokeswoman for the advocacy group Families USA told the DetroitFree Press, "We would have seen a lot more uninsured if we didn’t havethat Medicaid safety net out there," and credited Medicaid with having"cushioned the impact." The president of the Kaiser Family Foundationmade 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 thedecline of private coverage and the growth of Medicaid as if they wereseparate 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 someemployers stop providing health benefits when Medicaid becomesavailable to low-wage employees or their dependents.

It also means that even if workers are offered private coverage, somechoose Medicaid instead. USA Today reports, "Many workers chooseMedicaid over insurance offered by their employers because it is lessexpensive. Wal-Mart workers pay $273 a month for the company'sfamily 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 infour employers give low-wage workers information on how to enroll inMedicaid.

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

Some might say, "Isn't private coverage declining because the cost isrising?" Yes. But here again, Medicaid contributes to the problem.

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

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

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

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

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

Michael F. Cannon

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