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Insurance or Self-Insurance?: Variation, Persistence, and Individual Health Accounts

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  • Matthew J. Eichner
  • Mark B. McClellan
  • David A. Wise

Abstract

We explore the feasibility of catastrophic health insurance established in conjunction with individual health accounts (IHAs). Under this plan, the employer establishes both a high-deductible health insurance plan and an IHA. Employee health care costs below the deductible are then paid out of the IHA; costs above the deductible are paid by the insurance plan. Assets remaining in the account when the employee retires are available for other purposes. Although attractive because it helps to solve the moral hazard problem associated with conventional insurance plans, the scheme may be considered infeasible if medical expenditures over a working life are so persistent that certain individuals accumulate little in the IHA while others accumulate a great deal. Within the context of an illustrative IHA plan, we develop preliminary empirical evidence on the distribution of medical expenditures and hence savings under an IHA plan. Our analysis is based on longitudinal health insurance claims data from a large firm. We emphasize the balance in the IHA account at retirement. Although such a plan would produce a range of balances across employees, approximately 80% would retain over 50% of their contributions. Only about 5% would retain less than 20% of their contributions. The outcomes suggest to us that such a plan is feasible. And, we believe that such a plan could be structured to increase retirement savings.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5640.

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Date of creation: Jun 1996
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Publication status: published as Wise, D. (ed.) Inquiries in the Economics of Aging, University of Chicago Press, 1998
Handle: RePEc:nbr:nberwo:5640

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  1. Martin Feldstein & Jonathan Gruber, 1994. "A Major Risk Approach to Health Insurance Reform," NBER Working Papers 4852, National Bureau of Economic Research, Inc.
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Cited by:
  1. Hugo Benitez-Silva & Moshe Buchinsky & John Rust & Emine Boz & Joseph B. Nichols & Sharbani Roy & Ignez Tristao, 2005. "Health Status, Insurance, and Expenditures in the Transition from Work to Retirement," Department of Economics Working Papers, Stony Brook University, Department of Economics 05-11, Stony Brook University, Department of Economics.
  2. Rettenmaier, Andrew J. & Wang, Zijun, 2006. "Persistence in Medicare reimbursements and personal medical accounts," Journal of Health Economics, Elsevier, Elsevier, vol. 25(1), pages 39-57, January.
  3. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
  4. Herring, Bradley & Pauly, Mark V., 2006. "Incentive-compatible guaranteed renewable health insurance premiums," Journal of Health Economics, Elsevier, Elsevier, vol. 25(3), pages 395-417, May.
  5. John Bailey Jones & Eric French, 2002. "On the Distribution and Dynamics of Health Costs," Discussion Papers, University at Albany, SUNY, Department of Economics 02-03, University at Albany, SUNY, Department of Economics.
  6. Adriana Kugler, 2004. "Wage-Shifting Effects of Severance Payments Savings Accounts in Colombia," Working Papers 132, Barcelona Graduate School of Economics.
  7. Martin Gaynor & Jian Li & William B. Vogt, 2006. "Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 07/166, Department of Economics, University of Bristol, UK.

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