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The Interaction of Partial Public Insurance Programs and Residual Private Insurance Markets: Evidence from the U.S. Medicare Program

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  • Amy Finkelstein

Abstract

A ubiquitous form of government intervention in insurance markets is to provide compulsory, but partial, public insurance coverage and to allow voluntary purchases of supplementary insurance on the private market. Yet we know little about the effects of such programs on total insurance coverage and on welfare. A primary concern is that the compulsory public insurance program - designed to counter the effects of adverse selection in the private insurance market - may in fact exacerbate adverse selection pressures in the residual private insurance market. Theoretically, however, these programs may either improve or impair the functioning of the residual private insurance market. To examine this question empirically, I investigate the effect of the U.S. Medicare program - which provides partial public health insurance to individuals aged 65 and over - on the private insurance market for prescription drugs, a benefit not provided by the public program. The results suggest that Medicare does not have substantial spillover effects on residual private insurance markets. In particular, there is no evidence that Medicare is associated with increased adverse selection problems in the residual private health insurance market.

Suggested Citation

  • Amy Finkelstein, 2002. "The Interaction of Partial Public Insurance Programs and Residual Private Insurance Markets: Evidence from the U.S. Medicare Program," NBER Working Papers 9031, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9031
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    Citations

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    Cited by:

    1. Anja Deelen, 2005. "Adverse selection in disability insurance; empirical evidence for Dutch firms," CPB Discussion Paper 46, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Raj Chetty & Emmanuel Saez, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Chapters,in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 85-114 National Bureau of Economic Research, Inc.
    3. David Candon, 2015. "The Effect of Cancer on the Employment of Older Males: Attenuating Selection Bias using a High Risk Sample," Working Papers 201507, School of Economics, University College Dublin.
    4. Liu, Hong & Gao, Song & Rizzo, John A., 2011. "The expansion of public health insurance and the demand for private health insurance in rural China," China Economic Review, Elsevier, vol. 22(1), pages 28-41, March.
    5. Finkelstein, Amy, 2004. "The interaction of partial public insurance programs and residual private insurance markets: evidence from the US Medicare program," Journal of Health Economics, Elsevier, vol. 23(1), pages 1-24, January.
    6. Guler, Bulent & Taskin, Temel, 2013. "Does unemployment insurance crowd out home production?," European Economic Review, Elsevier, vol. 62(C), pages 1-16.
    7. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    8. Amy Finkelstein, 2002. "When Can Partial Public Insurance Produce Pareto Improvements?," NBER Working Papers 9035, National Bureau of Economic Research, Inc.
    9. Katherine Baicker & Jacob A. Robbins, 2015. "Medicare Payments and System-Level Health-Care Use: The Spillover Effects of Medicare Managed Care," American Journal of Health Economics, MIT Press, vol. 1(4), pages 399-431, Fall.
    10. Xuezheng Qin & Gordon Liu, 2013. "Does the US health care safety net discourage private insurance coverage?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(3), pages 457-469, June.
    11. repec:hrv:faseco:34330197 is not listed on IDEAS
    12. Amarakoon Bandara, 2005. "Emerging health isues in Asia and the Pacific: implications for public health policy," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 12(2), pages 33-58, December.
    13. Baicker, Katherine & Chernew, Michael E. & Robbins, Jacob A., 2013. "The spillover effects of Medicare managed care: Medicare Advantage and hospital utilization," Journal of Health Economics, Elsevier, vol. 32(6), pages 1289-1300.
    14. Vicky Barham & Hana Bataineh & Rose Anne Devlin, 2017. "Unmet Health Care and Health Care Utilization," Working Papers 1716E, University of Ottawa, Department of Economics.
    15. Devlin, Rose Anne & Sarma, Sisira & Zhang, Qi, 2011. "The role of supplemental coverage in a universal health insurance system: Some Canadian evidence," Health Policy, Elsevier, vol. 100(1), pages 81-90, April.
    16. Irma Machielse & Danielle Timmermans & Peter Wakker, 2007. "The effects of statistical information on risk ambiguity attitudes, and on rational insurance decisions," Natural Field Experiments 00338, The Field Experiments Website.
    17. Peter P. Wakker & Daniëlle R. M. Timmermans & Irma Machielse, 2007. "The Effects of Statistical Information on Risk and Ambiguity Attitudes, and on Rational Insurance Decisions," Management Science, INFORMS, vol. 53(11), pages 1770-1784, November.

    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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