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

Jeffrey Brown and Amy Finkelstein

American Economic Review, 2008, vol. 98, issue 3, 1083-1102

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.

JEL-codes: G22 I18 I38 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.3.1083
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Citations: View citations in EconPapers (261)

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Working Paper: The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market (2004)
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