January 12, 2005

Easy Insurance

I missed this when it came out a few days back, but Daniel Gross summarized a new paper from MIT economist Jonathan Gruber, who found that simply expanding Medicaid is a more cost-effective way to cover the uninsured than some of the alternatives. Well, not all the uninsured. But 3 million of them, at least:
If the government simply gave free public health insurance to everybody whose income places them at or below the poverty level, it could add the 3 million insured. Of those who could take advantage of such a program, Gruber concluded, 87 percent would have been formerly uninsured. Taxpayers would spend $1.17 for each dollar value of insurance gained. (The results are summarized in Table 5 of the paper.)

Next, Gruber examined a proposal similar to that contained in President Bush's 2004 budget, which would offer individuals tax credits (a maximum of $3,000 per family) to buy insurance. In order to get 3 million new insured under this scheme, the program would have to be large. Only 37.4 percent of those who would respond to such a credit would have previously lacked insurance. Taxpayers would lose $3.24 in tax revenue for every dollar value of insurance gained.

An employee tax credit, which offers a credit to those uninsured who are offered health insurance at work, but don't buy it, would be even less effective. Only 5.7 percent of those who would take advantage of the offer would have lacked insurance before. Taxpayers would thus lose $5.82 in revenue for each dollar in insurance gained.

Finally, Gruber analyzed a proposal similar to one proposed by former Rep. Richard Gephardt in the 2004 campaign—give employers tax credits for providing insurance on top of the deduction. To add 3 million new insured individuals through this route, taxpayers would lose $2.36 in revenue for each dollar in insurance gained.
Interesting. Now Gruber's no fan of Medicaid. He and David Cutler published a Health Affairs paper (PDF) long, long ago showing that Medicaid expansion caused private coverage to decline by about 50 percent. I'm not sure if in this new paper he factors in companies dumping their low-income employees off their coverage and onto Medicaid. (On the other hand, this would happen with individual tax credits as well.) Then there's the question of whether Medicaid actually offers decent coverage. By many accounts it does not. But it's also better than no coverage at all. So there we go; an easy solution!
-- Brad Plumer 5:29 PM || ||