The Effect of Health Reform on Public and Private Insurance in the Long Run

Abstract

We use established methods and recent data to estimate the effects of changes in premium taxes and Medicaid eligibility on the likelihood of being covered by public or private insurance. We find Medicaid expansion for working adults will crowd-out private insurance at a high rate and that premium taxes will make private coverage less attractive and public coverage more attractive to lower-income workers. We illustrate the implications of these findings by simulating the consequences of the Patient Protection and Affordable Care Act of 2010. As the high-premium excise tax affects increasing numbers of workers between 2018 and 2030, we predict that some will shift from private to public coverage, amplifying the effect of Medicaid expansion. The proportion of workers and their families covered by public insurance will grow from 6% in 2006 to about 14% in 2030 while about 5% will obtain subsidized coverage through exchanges. The fraction covered by private insurance will grow initially in response to the mandate and then decline in response to the tax.

Keywords: Health Insurance, Medicaid, Crowd-Out, Premium Tax, Affordable Care Act

JEL Classification: I18, I38, J32