Subsidies for health insurance for chronically ill, high-cost individuals may increase coverage in the broader population by improving the functioning of insurance markets. In this paper, we assess an historical example of a policy intervention of this sort, the extension of Medicare to the disabled, on the private insurance coverage of non-disabled individuals. We use data on insurance coverage from the Panel Study of Income Dynamics from before and after the extension of Medicare to the disabled to estimate the effect of the program on private insurance coverage rates in the broader population. We find that the insurance coverage of individuals who had a health condition that limited their ability to work increased significantly in states with high versus low rates of disability. Our findings suggest that subsidizing individuals with high expected health costs is an effective way to increase the private insurance coverage of other high-cost individuals. . . .

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John F. Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution. R. Glenn Hubbard is a visiting scholar at AEI and a member of AEI's Council of Academic Advisers. Daniel P. Kessler is a senior fellow at the Hoover Institution.