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What Did Medicare Do (And Was It Worth It)?

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Author Info
Amy Finkelstein
Robin McKnight
Abstract

We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on their mortality. However, we find that the introduction of Medicare was associated with a substantial reduction in the elderly%u2019s exposure to out of pocket medical expenditure risk. Specifically, we estimate that Medicare%u2019s introduction is associated with a forty percent decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover between half and three-quarters of the costs of the Medicare program. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11609.

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Date of creation: Sep 2005
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Handle: RePEc:nbr:nberwo:11609

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Find related papers by JEL classification:
H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James M. Poterba, 1996. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Chapters, in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. David Card & Carlos Dobkin & Nicole Maestas, 2004. "The Impact of Nearly Universal Insurance Coverage on Health Care Utilization and Health: Evidence from Medicare," Working Papers 197, RAND Corporation Publications Department. [Downloadable!]
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  3. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
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  4. Marianne Bitler & Jonah Gelbach & Hilary Hoynes, 2003. "What Mean Impacts Miss: Distributional Effects of Welfare Reform Experiments," NBER Working Papers 10121, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Amy Finkelstein, 2005. "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare," NBER Working Papers 11619, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Mark McClellan & Jonathan Skinner, 1997. "The Incidence of Medicare," NBER Working Papers 6013, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Jeffrey R. Brown & Amy Finkelstein, 2004. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," NBER Working Papers 10989, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March. [Downloadable!] (restricted)
  9. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589.
  11. Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, . "New Evidence on the Money's Worth of Individual Annuities," Pension Research Council Working Papers 97-9, Wharton School Pension Research Council, University of Pennsylvania.
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  1. David M. Cutler & Angus S. Deaton & Adriana Lleras-Muney, 2006. "The Determinants of Mortality," NBER Working Papers 11963, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Nicole Maestas & Mathis Schroeder & Dana Goldman, 2009. "Price Variation in Markets with Homogeneous Goods: The Case of Medigap," NBER Working Papers 14679, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Hilary W. Hoynes & Diane Schanzenbach, 2007. "Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program," NBER Working Papers 13025, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Adrian Stoian & Price V. Fishback, 2009. "Welfare Spending and Mortality Rates for the Elderly Before the Social Security Era," NBER Working Papers 14970, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Daron Acemoglu & David Cutler & Amy Finkelstein & Joshua Linn, 2006. "Did Medicare Induce Pharmaceutical Innovation?," NBER Working Papers 11949, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Robert E. Hall & Charles I. Jones, 2005. "The value of life and the rise in health spending," Proceedings, Federal Reserve Bank of San Francisco. [Downloadable!]
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  7. David Card & Carlos Dobkin & Nicole Maestas, 2007. "Does Medicare Save Lives?," NBER Working Papers 13668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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