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234 What Is Crowd-Out? Historically, high numbers of individuals without health insurance have meant that the United States must deliver care to roughly 15 percent of the population through a fragmented health care safety net that includes Medicaid, federally qualified health centers, and a variety of sources of free care, such as free clinics (Department of Health and Human Services 2005). The severe economic downturn that began in 2007 and resulted in record high unemployment, combined with a private health insurance sector that is dominated by employer-supplied insurance, has resulted in an additional 5.6 million Americans without health insurance as of 2010 (Holahan 2010). High unemployment , and therefore high rates of uninsurance, is projected to persist if not increase through 2011. Unemployment is expected to remain high for several more years (Federal Reserve 2010). For these reasons, enactment of the Patient Protection and Affordable Care Act (or Accountable Care Act, ACA) in 2010 seemed a potentially well-timed expansion of access to both private and public health insurance. However, as this chapter is being written in late 2010, there is credible political discussion of repealing all or parts of the act. If ACA opponents are successful, the need for adequate and comprehensive safety-net care is likely to be higher than at any time since enactment of Medicare and Medicaid in 1965. This may be further exacerbated by reductions in federal aid to states and shrinking state revenues resulting from political efforts to reduce deficit spending in response to recent US fiscal and economic problems. Public Coverage Expansions and Private Health Insurance Crowd-Out Implications for Safety Nets Chapter 11 Alison Snow Jones Expansions and Crowd-Out 235 Unfortunately, expansions in the safety net or publicly financed care are not without controversy. Underlying discussions about repeal of ACA and previous attempts to expand publicly provided care is an idea that lies at the heart of American economic thought: that the private sector is more efficient at producing and providing goods and services than the public sector. “Efficient ” means the private sector produces more at lower cost and in the right mix and amounts—where “right” is determined by consumer preferences as revealed in their market purchases, constrained only by their budgets and prevailing prices. For this reason, the public sector and publicly provided health care, such as that supplied by safety-net providers or financed by the Medicaid program, are viewed by some with skepticism at best and with near hostility in the extreme. The idea of private sector efficiency or superiority drives much of the dialogue about both. It also gives rise to lawmaker and private interest group concerns that any expansions of the public sector will crowd out or displace the private sector. It is therefore no surprise that a considerable literature has arisen devoted to assessing the extent to which federal Medicaid and State Children’s Health Insurance Program (SCHIP) eligibility expansions “crowd out” private provision and private financing of health care. “Crowding-out” is a term that originated in macroeconomics where it is used to describe the effect of federal budget deficits on private investment spending (Krugman and Wells 2006). All else held constant, government borrowing to finance deficits tends to increase interest rates, thus raising the price of private borrowing and reducing private investment. Another form of macroeconomic crowd-out arises when government demand for goods and services bids up wage rates among firms and industries that provide the goods and services. This will tend to affect other private firms that draw from the same labor markets, causing them to face more sharply rising production costs. Over time, if an economy is at full employment, both forms of crowd-out will tend to shrink private sector output and raise private sector prices, reducing consumer welfare. To the extent that the private sector has all the good (that is, efficient) qualities of competitive markets populated with fully informed rational consumers, then crowd-out will be harmful to individuals and to the public interest. It interferes with the efficient allocation of private capital and resources to sectors of the economy where demand and productivity are highest, thereby slowing economic growth. The important thing to note in this macroeconomic conceptualization of crowding-out is that the harm inflicted depends critically on at least three assumptions: the economy’s being at full employment; the private sector’s being competitive and, therefore, efficient (that is, no...

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Additional Information

ISBN
9780813553177
Related ISBN
9780813553061
MARC Record
OCLC
809977367
Pages
296
Launched on MUSE
2012-11-02
Language
English
Open Access
No
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