What is the substitution effect or "crowd out?" The substitution effect occurs when individuals substitute free or reduced-price public benefits for private sector benefits. Substitution can be viewed from two different perspectives. The first, individual-based substitution, or "opt out," is an estimate of the proportion of individuals who choose a government-subsidized program instead of selecting employer-sponsored coverage. The second, employer-based substitution, or "push out," is the effect of employers reducing or eliminating health insurance coverage to workers and their families as part of their employee compensation package with the expectation that a public program will provide needed coverage.