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 and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- I12 - Health, Education, and Welfare - - Health - - - Health Production
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- Mariana Carrera & Dana Goldman & Geoffrey Joyce, 2013. "Heterogeneity in Cost-Sharing and Cost-Sensitivity, and the Role of the Prescribing Physician," NBER Working Papers 19186, National Bureau of Economic Research, Inc.
- Dizioli, Allan & Pinheiro, Roberto B., 2012. "Health insurance as a productive factor," MPRA Paper 39743, University Library of Munich, Germany.
- Hui He & Kevin x.d. Huang, 2013. "Why Do Americans Spend So Much More on Health Care than Europeans?--A General Equilibrium Macroeconomic Analysis," Vanderbilt University Department of Economics Working Papers 13-00005, Vanderbilt University Department of Economics.
- Naoki Aizawa & Hanming Fang, 2013. "Equilibrium Labor Market Search and Health Insurance Reform," PIER Working Paper Archive 13-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Hanming Fang & Naoki Aizawa, 2012. "Equilibrium Labor Market Search and Health Insurance Reform," 2012 Meeting Papers 959, Society for Economic Dynamics.
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