In my home state of Ohio our new Governor, Ted Strickland, has decided to reduce the ranks of the uninsured by expanding Medicaid/SCHIP Eligibility to 300 percent of poverty level. Original research suggested that two-thirds to three-quarters of those enrolling in the expanded public programs simply dropped private health insurance (see Cutler and Gruber 1996). These estimates have been challenged over the years. Now, using improved data and incorporating different research approaches suggested by critics of Cutler and Gruber's work,  Gruber and Simon (NBER Working Paper #12858, January 2007) find a crowd out rate of around 60 percent.

What does this mean? Suppose government health eligibility expansion signs up 10 people with average expenses of $2,000. Six of these will have dropped private coverage. So the state actually expanded coverage by only 4 people, at a cost of $20,000. Thus, the enrollment cost is $5,000 instead of $2,000. That's an increased cost per insured of 150 percent over the supposed amount.

In addition, the research shows that various anti-crowd out measures actually make the problem worse by reducing public enrollment faster than it reduces private coverage. Is there a better example of the "Law of Unintended Consequences?"

Mike Bond 

Cleveland State Univ & James Madison Institute