Delivering Public Health Care Services: Substitutes, Complements, or Both?

I. INTRODUCTION The number of uninsured Americans has been increasing steadily over the past decade. As of 2001, an estimated 41 million people were uninsured during the entire calendar year (Bureau of Labor Statistics, 2002). There is also evidence that many Americans transition between being insured and uninsured (Short and Klerman, 1998; Swartz et al., 1993). The uninsured are a heterogeneous group with variable access to health insurance depending upon family structure, health status, public program eligibility requirements, and employment-based insurance offers. One-fifth of all uninsured Americans are offered health insurance by their employer or a family member's employer but choose not to enroll in the offered plan, most citing cost as the main obstacle (Cunningham, 1999). About half of poor, full-time workers were uninsured in 1999 (Bureau of Labor Statistics, 2000) A large body of literature has shown that a lack of health insurance has important health consequences (Ayanian et al., 2000; Berk et al., 1995; Hadley et al., 1991; Rask et al., 1994; Weissman et al., 1999; Zuvekas and Weinick, 1999). Public health care programs aim to improve access to medical care by filling gaps in the private health insurance market. Public services are designed to make health care or health insurance available to those otherwise unable to obtain it, thus providing a "safety net" for health care services. These programs can be structured as subsidies to health care providers for providing care to the uninsured or as direct insurance to the uninsured. Public programs that are currently available include providing medical services directly through public providers (e.g., public hospitals and federally funded health clinics), subsidizing private providers (e.g., uncompensated care reimbursement funds), and direct public health insurance (e.g., Medicaid). However, when public services are available as a nonexclusionary public good, there may also be some substitution of this public good by individuals who would have otherwise remained in the private health care sector, resulting in what is commonly referred to as "crowd-out." Previous work has shown that public health insurance programs do affect the purchase of private health insurance by individuals. Medicaid programs have been shown to have substitution effects. Previous work has suggested that 14 percent to 50 percent of the added coverage attributable to Medicaid expansions to cover low-income children and pregnant women might be offset by reductions in private coverage (Cutler and Gruber, 1996; Davidoff and Garrett, 2001; Dubay and Kenney, 1997; Shore-Sheppard, 1997; Thorpe and Florence, 1998; Yazici and Kaestner, 2000). Previous simulations from 1987 data suggested that approximately 11% of those low-income individuals who would be privately insured if there were no public hospitals are currently uninsured (Rask and Rask, 2000). The substitutability and complementarity of public health care providers have been less well studied. It is possible that direct provision of low-cost health care services might provide access to medical services without substituting for private health insurance. Public hospitals comprise 18% of all hospital beds and are large providers of outpatient primary and specialty care services, providing more than 19 percent of short-term general hospital outpatient visits in 1995 (AHA, 1998). There are more than 2900 federally funded community and migrant health centers (Federally qualified health centers [FQHCs]) located in medically underserved rural and urban communities, serving an estimated 10 million people (Bureau of Primary Health Care, 2000). The vast majority (85 percent) of clinic patients are low income. Nationally the number of uninsured people served by health centers increased 50 percent from 1990 to 1997, but cost-based reimbursement from Medicaid continues to be the major source of clinic funding (Rosenbaum et al. …