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

摘要

This paper has examined the magnitude and mechanism by which Medicaid affects demand for private long-term care insurance. We do so by developing and calibrating a risk-averse individual's willingness to pay for private insurance in a stochastic, dynamic life-cycle model. We have three main findings. First, given the presence of Medicaid, the bottom two-thirds of the wealth distribution would not want to purchase private insurance even if it were available at actuarially fair prices. Second, the crowd-out effect of Medicaid stems from the implicit tax it imposes on private insurance policies, on the order of 60 to 75 percent for the median wealth individual. Third, Medicaid provides far from comprehensive insurance for all but the poorest of individuals. For example, for the median wealth individual, we estimate that the welfare loss associated with Medicaid's incomplete coverage relative to comprehensive coverage is equivalent to about 10 percent of total wealth. Our findings, thus, indicate that public insurance can substantially crowd out private insurance, even when the public insurance provides only limited coverage against risk exposure.