From the National Bureau of Economic Research comes this interesting study that Medicaid crowds out private health insurance. The authors of the study look at long term care for the elderly and arrive at several of interesting results.
- The presence of Medicaid is sufficient to explain why at least two-thirds of all households would prefer not to purchase private long-term care insurance.
- Medicaid imposes an implicit tax rate of about 60 percent for men (and 75 percent for women).
- The authors suggest that recent state and federal reforms designed to stimulate demand for private insurance are unlikely to have much impact because they fail to adequately reduce this implicit tax.
- Public provision of insurance has the potential to reduce total insurance coverage and thus to increase overall risk exposure.
The problem pretty much stems from the implicit tax that the authors discuss. Given this tax there is a heavy incentive to avoid private insurance. Further, these results are aside from the issues market failure.
One solution is to simply provide public insurance that provides complete coverage. The only problem with this is that this also creates problems. There are problems with people not saving for their long term health care and having it completely subsidized by the tax payers. Once this is happens there is no incentive to control costs on the part of the elderly recieving this subsidy. Add on that the elderly are a very powerful voting block and it could be a recipe for out of control budget deficits that make the recent binge spending by Bush look like a joke.
I think a better approach would be to give every person a fixed amount of money that can be used to purchase health insurance, say $2,000.1 This would still allow for market incentives to help contain costs (after all if I can find two policies that are identical save that one costs $2,200 and the other $2,000 I’ll go with the less costly option). On top of this make health insurance mandantory. Believe it or not there are people out there who don’t buy health insurance on purpose. I think we should basically make such behavior punishable (yes, as in, “I’m sorry, you are just too stupid on this decision so the act of making a decision has been taken away. Now, pick your health insurance or we’ll get really nasty.”)2 So, now there will be mandantory health care insurance and on top of it people will be helped with this purchase. No more uninsured and we can still get some decent market incentives.
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1We could tie the amount of the subsidy to income. For example, the $2,000 could be for a person who is at say 1.5x the poverty level (and lets assume the poverty level is $10,000). Thus if you make $16,000 a year you might get a subsidy of $1,950 or something like that. Structure it so that there is still an incentive to take a better paying job.
2Yes, I know that sounds a bit over the top, but when you think about it, this is basically the message of any and all nationalization schemes. If health care is nationalized you will have health care and you will pay for it (via taxes). The option of “opting out” will not exist at all because only those who know they are healthy will opt out leaving only the sickly in the system. So, if you are a liberal and this view shocks you, tough crap, this is what you have been aggitating for and I admit defeat. You win, this is what you get…without all the sugar coating that is.
