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

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  • 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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Bibliographic Info

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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Publication status: published as Finkelstein, Amy and Robin McKnight. "What Did Medicare Do? The Initial Impact of Medicare on Mortality and Out of Pocket Medical Spending." Journal of Public Economics 92 (2008): 1644-1669.
Handle: RePEc:nbr:nberwo:11609

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  12. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June.
  13. 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.
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