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

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  • Minchung Hsu

    (GRIPS)

  • Junsang Lee

    (Australian National University)

  • Gary D. Hansen

    (UCLA)

Abstract

Current U.S. policy extends medical insurance in the form of Medicare to individuals aged 65 and over. Younger individuals may have group health insurance through their employer, purchase individual health insurance, or go without. The fact that many individuals have no insurance, or have relatively expensive individual insurance, is a motivation for health insurance reform. This paper evaluates the general equilibrium and welfare consequences of health insurance reform in a calibrated life-cycle economy with incomplete markets, uncertain lifespans, and endogenous labor supply. In particular, we consider a policy reform that would allow younger workers (aged 55-64) to purchase Medicare coverage. In our model, working age individuals face idiosyncratic productivity shocks, choose whether or not to work (labor is indivisible), accumulate claims to capital, and can purchase private health insurance if they do not receive group health insurance through their employer. Retired individuals receive social security and Medicare which, along with accumulated savings, is used to finance consumption and medical expenditures. Preliminary results indicate that adverse selection renders a Medicare buy-in program infeasible unless at least 40 percent of the costs of the program are financed through government subsidy.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 699.

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Date of creation: 2011
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Handle: RePEc:red:sed011:699

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  1. Arthur B. Kennickell, 2003. "A Rolling Tide: Changes in the Distribution of Wealth in the US, 1989-2001," Economics Working Paper Archive wp_393, Levy Economics Institute.
  2. 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.
  3. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 210-221, March.
  4. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  5. Arthur B. Kennickell, 2003. "A rolling tide: changes in the distribution of wealth in the U.S., 1989-2001," Finance and Economics Discussion Series 2003-24, Board of Governors of the Federal Reserve System (U.S.).
  6. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1995. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
  7. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  8. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices 11-70, Review of Economic Dynamics.
  9. Arthur B. Kennickell, 2003. "A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001," Others 0311002, EconWPA.
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Cited by:
  1. Ponpoje (Poe) Porapakkarm & Svetlana Pashchenko, 2013. "Labor Supply Incentives of Medicaid," 2013 Meeting Papers 1082, Society for Economic Dynamics.
  2. Mariacristina De Nardi & Eric French & John Bailey Jones, 2012. "Medicaid Insurance in Old Age," Working Papers wp278, University of Michigan, Michigan Retirement Research Center.
  3. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2013. "Work Incentives of Medicaid Beneficiaries and The Role of Asset Testing," MPRA Paper 49730, University Library of Munich, Germany.
  4. Cole, Harold L. & Kim, Soojin & Krueger, Dirk, 2012. "Analyzing the effects of insuring health risks: On the trade-off between short run insurance benefits vs. long run incentive costs," CFS Working Paper Series 2012/18, Center for Financial Studies (CFS).
  5. Ponpoje (Poe) Porapakkarm & Svetlana Pashchenko, 2013. "Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform," 2013 Meeting Papers 1086, Society for Economic Dynamics.
  6. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  7. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices 11-70, Review of Economic Dynamics.

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