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Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare

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Author Info

  • Juergen Jung

    ()
    (Department of Economics, Towson University)

  • Chung Tran

    ()
    (School of Economics, University of New South Wales)

Abstract

In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2009-12.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2009-12.

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Length: 49 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:swe:wpaper:2009-12

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Related research

Keywords: Public health insurance; private health insurance; vouchers; dynamic stochastic general equilibrium model; endogenous health production;

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Cited by:
  1. 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).
  2. Ponpoje Porapakkarm & Svetlana Pashchenko, 2011. "Quantitative Analysis of Health Insurance Reform: Separating Community Rating from Income Redistribution," 2011 Meeting Papers 1254, Society for Economic Dynamics.
  3. Juergen Jung & Chung Tran, 2014. "Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010," Working Papers 2014-01, Towson University, Department of Economics, revised Feb 2014.
  4. Martin Dumav, 2013. "Health Insurance over the Life Cycle with Adverse Selection," 2013 Meeting Papers 1138, Society for Economic Dynamics.
  5. Juergen Jung & Chung Tran, 2010. "The Macroeconomics of Health Savings Accounts," Working Papers 2010-12, Towson University, Department of Economics, revised May 2011.
  6. Shantanu Bagchi & James Feigenbaum, 2014. "Is Smoking a Fiscal Good?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 170-190, January.

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