Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence
AbstractWe investigate the effects of the institutional settings of the U.S. health care system on individuals' life-cycle medical expenditures. We argue that health is a form of human capital that affects labor productivity, and that the employment-based health insurance system may lead to inefficient investment in individuals' health care. The reason is that labor turnover and frictions in the labor market prevent an employer-employee pair from capturing the entire surplus from investment in an employee's health. Thus, the pair underinvests in health capital, and this underinvestment increases medical expenditures during retirement. We provide extensive empirical evidence consistent with the comparative statics predictions of our model using two datasets, the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (HRS). The magnitude of our estimates suggests a significant degree of inefficiency in health investment in the U.S.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-01.
Length: 43 Pages
Date of creation: 2010
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
Health; Health Expenditure; Turnover; Health Care; Health Insurance; Labor Productivity;
Other versions of this item:
- Hanming Fang & Alessandro Gavazza, 2011. "Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence," American Economic Review, American Economic Association, vol. 101(7), pages 3047-77, December.
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- I12 - Health, Education, and Welfare - - Health - - - Health Production
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