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Health capital accumulation, health insurance, and aggregate outcomes: A neoclassical approach

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  • Kelly, Mark

Abstract

Over the past two decades, medical expenditure growth in the US has outpaced GDP growth by over 1.3% annually. To date, the literature has primarily focused on explaining the rapid rise in medical consumption relative to output, with only limited attention given to understanding the long-run macroeconomic implications of this trend. In this study, I modify the standard Neoclassical growth framework to include health capital accumulation, public and private health insurance, and GHH utility. After calibrating the model to match US data for the period 1996–2013, I systematically investigate the response of output, physical and health capital, medical and non-medical consumption, and household time allocation to one-time exogenous shocks to various potential determinants of medical expenditure growth. I find that a 10% increase in final goods and medical sector productivity shocks each have a positive effect on aggregate welfare. On the other hand, a 10% increase to the endogenous depreciation rate of health capital, or to either the public or the private health insurance share are all found to be welfare reducing.

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  • Kelly, Mark, 2017. "Health capital accumulation, health insurance, and aggregate outcomes: A neoclassical approach," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 1-22.
    • Handle: RePEc:eee:jmacro:v:52:y:2017:i:c:p:1-22
    DOI: 10.1016/j.jmacro.2017.02.003
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    2. Hosoya, Kei, 2023. "Impact of infectious disease pandemics on individual lifetime consumption: An endogenous time preference approach," Journal of Macroeconomics, Elsevier, vol. 76(C).
    3. Mazhar, Ummad & Rehman, Fahd, 2022. "Productivity, obesity, and human capital: Panel data evidence," Economics & Human Biology, Elsevier, vol. 44(C).
    4. Stefan Fetzer & Stefan Moog, 2021. "Indicators for Measuring Intergenerational Fairness of Social Security Systems—The Case of the German Social Health Insurance," Sustainability, MDPI, vol. 13(10), pages 1-18, May.
    5. Kuhn, Michael & Frankovic, Ivan & Wrzaczek, Stefan, 2017. "Medical Progress, Demand for Health Care, and Economic Performance," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168249, Verein für Socialpolitik / German Economic Association.
    6. Bloom, David E. & Kuhn, Michael & Prettner, Klaus, 2018. "Health and Economic Growth," IZA Discussion Papers 11939, Institute of Labor Economics (IZA).
    7. Frankovic, Ivan & Kuhn, Michael & Wrzaczek, Stefan, 2020. "Medical innovation and its diffusion: Implications for economic performance and welfare," Journal of Macroeconomics, Elsevier, vol. 66(C).
    8. Atolia, Manoj & Papageorgiou, Chris & Turnovsky, Stephen J., 2021. "Re-opening after the lockdown: Long-run aggregate and distributional consequences of COVID-19," Journal of Mathematical Economics, Elsevier, vol. 93(C).
    9. Argentiero, Amedeo & Cerqueti, Roy & Sabatini, Fabio, 2021. "Does social capital explain the Solow residual? A DSGE approach," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 35-53.
    10. Wei-Bin Zhang, 2018. "Health, Environment, and Wealth," Izvestia Journal of the Union of Scientists - Varna. Economic Sciences Series, Union of Scientists - Varna, Economic Sciences Section, vol. 7(3), pages 109-123, December.
    11. Ivan Frankovic & Michael Kuhn & Stefan Wrzaczek, 2020. "On the Anatomy of Medical Progress Within an Overlapping Generations Economy," De Economist, Springer, vol. 168(2), pages 215-257, June.
    12. Syeda Anam Fatima Rizvi, 2020. "Cost effectiveness of health expenditures: A macro level study for developing and developed countries," Post-Print hal-03341702, HAL.
    13. Kelly, Mark & Kuhn, Michael, 2022. "Congestion in a public health service: A macro approach," Journal of Macroeconomics, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    General equilibrium; Neoclassical; Time use; Health capital accumulation; Health insurance; Healthcare consumption;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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