The Macroeconomic Consequences of Financing Health Insurance
AbstractEmployer-financed health insurance systems, like that used in the United States, distort firms' labor demand and adversely affect the economy. Since such costs vary with employment rather than hours worked, firms have an incentive to increase output by increasing worker hours rather than employment. Given that the returns to employment exceed the returns to hours worked, this results in lower levels of employment and output. In this paper we construct a heterogeneous agent general equilibrium model where individuals differ with respect to their productivity and employment opportunities. Calibrating the model to the U.S. economy, we generate steady state results for several alternative models for financing health insurance: one in which health insurance is financed primarily through employer contributions that vary with employment; a second where insurance is funded through a non-distortionary, lump-sum tax; and a third where insurance is funded by a payroll tax. We measure the effects of each of the alternatives on output, employment, hours worked and inequality.
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Bibliographic InfoPaper provided by Elon University, Department of Economics in its series Working Papers with number 2008-04.
Length: 27 pages
Date of creation: Feb 2008
Date of revision:
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Other versions of this item:
- Stephen DeLoach & Jennifer Platania, 2013. "The Macroeconomic Consequences of Financing Health Insurance," International Advances in Economic Research, Springer, vol. 19(2), pages 107-129, May.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-01 (All new papers)
- NEP-DGE-2008-03-01 (Dynamic General Equilibrium)
- NEP-HEA-2008-03-01 (Health Economics)
- NEP-IAS-2008-03-01 (Insurance Economics)
- NEP-MAC-2008-03-01 (Macroeconomics)
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