Market Inefficiency, Insurance Mandate and Welfare: US Health Care Reform 2010 (original) (raw)
Related papers
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.
U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?
Journal of Monetary Economics, 2009
The U.S. tax policy on health insurance is regressive because it favors only those offered group insurance through their employers, who tend to have a relatively high income. Moreover, the subsidy takes the form of deductions from the progressive income tax system, giving high-income earners a larger subsidy. To understand the effects of the policy, we construct a dynamic general equilibrium model with heterogenous agents and an endogenous demand for health insurance. We use the Medical Expenditure Panel Survey to calibrate the process for income, health expenditures, and health insurance offer status through employers and succeed in matching the pattern of insurance demand as observed in the data. We find that despite the regressiveness of the current policy, a complete removal of the subsidy would result in a partial collapse of the group insurance market, a significant reduction in the insurance coverage, and a reduction in welfare coverage. There is, however, room for raising the coverage and significantly improving welfare by extending a refundable credit to the individual insurance market.
Aging and Health Financing in the U.S. - A General Equilibrium Analysis
SSRN Electronic Journal, 2006
We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36.6 percent increase in health expenditures by 2060 and a 5 percent increase in GDP which is driven by the expansion of the healthcare sector. The group-based health insurance (GHI) market shrinks, while the individual-based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market and the stabilization of the GHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.
Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare
Towson University, Department of Economics, …, 2009
In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with health as a durable good to study the life-cycle behaviors of health care spending and financing. We show that a calibrated version of our generalized Grossman model is able to match the life-cycle trend of insurance take up ratios and average medical expenditure from the Medical Expenditure Panel Survey (MEPS) data in 2004/05. We then apply our model to analyze the macroeconomic implications of a counter factual health care reform in the U.S., using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium adjustments are critical in determining the performance of the voucher program.
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.
The Affordable Care Act After a Decade: Its Impact on the Labor Market and the Macro Economy
SSRN Electronic Journal
The Affordable Care Act (ACA) is one of the most important reforms of the US health insurance system since the introduction of Medicare. Since employment is a main source of health insurance for the working age population in the United States, this sweeping health insurance reform also has important implications for the labor market and the macro economy. In this paper, we survey the prototype models that are used in the macro and labor literature, extended to integrate health and health insurance, to study the short-and long-run consequences of the ACA. We also suggest open areas for future research.
Quantitative analysis of health insurance reform: separating regulation from redistribution
RePEc: Research Papers in Economics, 2012
Two key components of the upcoming health reform are a reorganization of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured by more than four times. It also generates substantial welfare gains, equivalent to almost one percent of the annual consumption. However, these welfare gains mostly come from the redistributive measures embedded in the reform. If the reform only reorganizes the individual market, introduces individual mandates but does not include any income-based transfers, the welfare gains are much smaller. This result is mostly driven by the fact that most uninsured people have low income. High burdens of health insurance premiums for this group are relieved disproportionately more by income-based measures than by the new rules in the individual market.
Winners and Losers of Universal Health Insurance: A Macroeconomic Analysis
The B.E. Journal of Theoretical Economics, 2019
This paper studies the supply-side distortions and the consequences resulted from provider-side cost containing universal health insurance (UHI) scheme. A two-sector overlapping generations model of endogenous physicians’ specialty choice is presented. We find that the general public is possible to be benefited from the cost containing UHI if the quality of medical services does not deteriorate too much. However, physicians in the medical service sector suffer from such scheme and end up earning lower incomes, regardless of one’s specialty and talent. Inequality among physicians also increases.
Tax policy toward health insurance and the demand for medical services
Journal of Health Economics, 1987
Reseachers have argued that the tax subsidy to employer-provided health insurance has led to overinsurance, excess demand for medical care, and to rapid expenditure growth in the medical care sector. This paper determines the quantitative significance of this linkage, using existing estimates of the elasticities of demand for health insurance and medical services in a static microsimulation model. We find that incorrect assumptions about the elasticities of demand and pattern of health insurance coverage led earlier researchers to overestimate the likely impact of the elimination of the tax expenditures for health insurance. We estimate, using mid-range assumptions, that complete elimination of the favorable tax treatment of employer contributions to health insurance would reduce the demand for employer-sponsored health insurance by 16-27 percent and the overall demand for medical services by about 4-6 percent and not more than 10 percent.
Macroeconomic Effects of Medicare
2017
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.