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Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance

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  • David F. Bradford
  • Derrick A. Max

Abstract

Since a typical regulatory mandate can be equated in its economic effect to a combination of an expenditure program and a tax program, observers have often suggested that it would serve consistent public policy to bring regulatory decisions into the same budgetary framework. This paper concerns an important example of a regulatory program that would mimic deficit financing in effecting a transfer of fiscal burdens toward younger and future generations, the mandated purchase of (or provision by employers of) health care insurance under a system of community rating, under which the same price is charged for health insurance for all comers, regardless of age, sex, or health condition. Such a shift would result in redistributions of burdens across birth cohorts, in this case from existing, especially middle-aged birth cohorts toward future generations. Using data from a variety of sources we conclude the effect would be substantial. For our central-case assumptions about discount, health care cost, and productivity growth rates, and about the locus of responsibility for paying health care bills, a shift to community rating is estimated to generate gains for people over age 30 in 1994, $16,700 per person aged 50 for example, at the cost to younger cohorts. Those born in 1994 would acquire an extra payment obligation with a discounted value of $7,100 each. The burden passed along to future generations can be described by a $9,300 per capita tax at birth (growing with productivity). The analysis makes clear that the regula- tory policy shift, with no direct budgetary implications, would have an intergenerational transfer effect comparable to what would be considered a major change in on-budget tax or transfer programs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5514.

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Date of creation: Mar 1996
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Publication status: published as Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance , David F. Bradford, Derrick A. Max. in Tax Policy and the Economy, Volume 11 , Poterba. 1997
Handle: RePEc:nbr:nberwo:5514

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Cited by:
  1. Tadashi Fukui & Yasushi Iwamoto, 2006. "Policy Options for Financing the Future Health and Long-Term Care Costs in Japan," NBER Working Papers 12427, National Bureau of Economic Research, Inc.
  2. David Bradford, 2001. "Reforming Budgetary Language," CESifo Working Paper Series 619, CESifo Group Munich.

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