Is There “Too Much” Inequality in Health Spending Across Income Groups?
AbstractIn this paper we study the efficient allocation of health resources across individuals. We focus on the relation between health resources and income (taken as a proxy for productivity). In particular we determine the efficient level of the health care social safety net for the indigent. We assume that individuals have different life cycle profiles of productivity. Health care increases survival probability. We adopt the classical approach of welfare economics by considering how a central planner with an egalitarian (ex-ante) perspective would allocate resources. We show that, under the efficient allocation, health care spending increases with labor productivity, but only during the working years. Post retirement, everyone would get the same health care. Quantitatively, we find that the amount of inequality across the income distribution in the data is larger that what would be justified solely on the basis of production efficiency, but not drastically so. As a rough summary, in U.S. data top to bottom spending ratios are about 1.5 for most of the life cycle. Efficiency implies a decline from about 2 (at age 25) to 1 at retirement. We find larger inefficiencies in the lower part of the income distribution and in post retirement ages.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17937.
Date of creation: Mar 2012
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Find related papers by JEL classification:
- H4 - Public Economics - - Publicly Provided Goods
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-04-10 (Economics of Ageing)
- NEP-ALL-2012-04-10 (All new papers)
- NEP-DGE-2012-04-10 (Dynamic General Equilibrium)
- NEP-HEA-2012-04-10 (Health Economics)
- NEP-LTV-2012-04-10 (Unemployment, Inequality & Poverty)
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- Harold L. Cole & Soojin Kim & Dirk Krueger, 2012.
"Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Costs,"
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