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Health Insurance Reform: The Impact of a Medicare Buy-In

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  • Gary D. Hansen
  • Minchung Hsu
  • Junsang Lee

Abstract

The steady state general equilibrium and welfare consequences of health insurance reform are evaluated in a calibrated life-cycle economy with incomplete markets and endogenous labor supply. Individuals face uncertainty each period about their future health status, medical expenditures, labor productivity, access to employer provided group health insurance, and the length of their life. In this environment, incomplete markets and adverse selection, which restricts the type of insurance contracts available in equilibrium, creates a potential role for health insurance reform. In particular, we consider a policy reform that would allow older workers (aged 55-64) to purchase insurance similar to Medicare coverage. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. Hence, we compare the equilibrium properties of the current insurance system with those that obtain with an optional buy-in subsidized by the government, as well as with several types of health insurance mandates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18529.

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Date of creation: Nov 2012
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Publication status: published as Hansen, Gary D. & Hsu, Minchung & Lee, Junsang, 2014. "Health insurance reform: The impact of a Medicare buy-in," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 315-329.
Handle: RePEc:nbr:nberwo:18529

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  1. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 03-95, Wharton School Rodney L. White Center for Financial Research.
  2. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(3), pages 659-84, August.
  3. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2007. "Insurance and Opportunities: A Welfare Analysis of Labor Market Risk," NBER Working Papers 13673, National Bureau of Economic Research, Inc.
  4. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices, Review of Economic Dynamics 11-70, Review of Economic Dynamics.
  5. Donna B. Gilleskie & Byron F. Lutz, 1999. "The Impact of Employer-Provided Health Insurance on Dynamic Employment Transitions," NBER Working Papers 7307, National Bureau of Economic Research, Inc.
  6. Arthur B. Kennickell, 2003. "A rolling tide: changes in the distribution of wealth in the U.S., 1989-2001," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-24, Board of Governors of the Federal Reserve System (U.S.).
  7. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(2), pages 210-221, March.
  8. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  9. Arthur B. Kennickell, 2003. "A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001," Others, EconWPA 0311002, EconWPA.
  10. Arthur B. Kennickell, 2003. "A Rolling Tide: Changes in the Distribution of Wealth in the US, 1989-2001," Economics Working Paper Archive, Levy Economics Institute wp_393, Levy Economics Institute.
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Cited by:
  1. 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," NBER Working Papers 18572, National Bureau of Economic Research, Inc.
  2. Mariacristina De Nardi & Eric French & John Bailey Jones, 2012. "Medicaid Insurance in Old Age," Working Papers, University of Michigan, Michigan Retirement Research Center wp278, University of Michigan, Michigan Retirement Research Center.
  3. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2013. "Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform," MPRA Paper 48054, University Library of Munich, Germany.
  4. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2013. "Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing," MPRA Paper 49730, University Library of Munich, Germany.
  5. Ponpoje (Poe) Porapakkarm & Svetlana Pashchenko, 2013. "Labor Supply Incentives of Medicaid," 2013 Meeting Papers, Society for Economic Dynamics 1082, Society for Economic Dynamics.
  6. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices, Review of Economic Dynamics 11-70, Review of Economic Dynamics.
  7. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.

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