Aging and Health Financing in the U.S. - A General Equilibrium Analysis (original) (raw)
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Financing Medicare: A general equilibrium analysis
2010
This paper develops a general equilibrium, overlapping-generations model of the U.S. economy where households face random fluctuations in health status. Health status determines households' productivity, mortality rate and their medical expenditures. Households make consumption and labor supply decisions, and can imperfectly insure medical expenditure shocks through markets. In addition, the government provides partial insurance against expenditure shocks through Medicare and a "social assistance" programs, and it runs a pay-as-you-go social security system. We calibrate the model based on the projected demographic and medical expenditure trends for the next 75 years. The model is used to study the macroeconomic and welfare implications of alternative funding schemes for Medicare. In the baseline closed-economy model, we find that the labor income tax will have to increase from 23% in 2005 to 36% in 2080 to finance the rising costs of Medicare. However, under an open-economy scenario, the tax would have to rise by much less. Limiting the increase in the wage tax through either a rise in the Medicare premium or a delay in the age of retirement is welfare improving. * We would like to thank Moshe Buchinsky for his insightful discussion, and the participants at the NBER meetings on "Demography and the Economy" for many helpful suggestions.
2011
In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. We find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. Notably, this increase in health spending is partly financed by the larger pool of insured individuals and by government spending. In order to finance the subsidies the government needs to either introduce a 2.7 percent payroll tax on individuals with incomes over $200, 000, increase the consumption tax rate by about 1.1 percent, or cut government spending about 1 percent of GDP. A stable outcome across all simulated policies is that the reform triggers increases in health capital, decreases in labor supply, and decreases in the capital stock due to crowding out effects and tax distortions. As a consequence steady state output decreases by up to 2 percent. Overall, we find that the reform is socially beneficial as welfare gains are observed for most generations along the transition path to the new long run equilibrium.
Market Inefficiency, Insurance Mandate and Welfare: US Health Care Reform 2010
Discussion Papers, 2010
In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. We find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On the other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. This increase in health spending is partly financed by the larger pool of insured individuals and by government spending. In order to finance the subsidies the government needs to either introduce a 2.7 percent payroll tax on individuals with incomes over $200, 000, increase the consumption tax rate by about 1.1 percent, or cut government spending about 1 percent of GDP. A stable outcome across all simulated policies is that the reform triggers increases in health capital, decreases in labor supply, and decreases in the capital stock due to crowding out effects and tax distortions. As a consequence steady state output decreases by up to 2 percent. Overall, we find that the reform is socially beneficial as welfare gains are observed for most generations along the transition path to the new long run equilibrium. Finally, we show that the insurance take-up rate is mainly driven by the tax penalty and that the premium subsidies have only a moderate effect on enforcing the mandate.
AGING OF THE POPULATION AND ITS INFLUENCE TO THE AGGREGATE HEALTH CARE COST IN THE U.S.A
Health care costs consume the largest portion of the gross domestic product (GDP) in the most countries. We tried to find the link between the aging of population and aggregate health care cost. Initially the study assumes that the aging of the population does have a significant relationship with the increases in the total national health care cost. A quantitative research survey with 80 participants was conducted to collect data for analysis. However, the findings of the study suggest that this (contrary to the primary-retrospective research) did not have a significant relationship to the national aggregate health care cost.
The Macroeconomics of Health Savings Accounts
2008
We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible-and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers.
Macroeconomic Effects of Medicare
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This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.
Social security and Medicare policy from the perspective of generational accounting
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Medicaid Insurance in Old Age, Working Paper 2012-13
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