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Health insurance reform: The impact of a Medicare buy-in

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  • Hansen, Gary D.
  • Hsu, Minchung
  • Lee, Junsang

Abstract

The steady-state general equilibrium and welfare consequences of a Medicare buy-in program, optional for those aged 55–64, is evaluated in a calibrated life-cycle economy with incomplete markets. Incomplete markets and adverse selection create a potential welfare improving role for health insurance reform. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. The subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0.03–0.18 percent depending on how the program is implemented.

Suggested Citation

  • Hansen, Gary D. & Hsu, Minchung & Lee, Junsang, 2014. "Health insurance reform: The impact of a Medicare buy-in," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 315-329.
    • Handle: RePEc:eee:dyncon:v:45:y:2014:i:c:p:315-329
    DOI: 10.1016/j.jedc.2014.06.006
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    More about this item

    Keywords

    Health insurance; Life cycle model; Incomplete markets;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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