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Reducing Medical Spending of the Publicly Insured: The Case for a Cash-out Option

Author

Listed:
  • Svetlana Pashchenko
  • Ponpoje Porapakkarm

Abstract

Individuals' medical spending has both necessary and discretionary components, which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework, the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between nonmedical and medical consumption. Next, using a rich quantitative life-cycle model, the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers.

Suggested Citation

  • Svetlana Pashchenko & Ponpoje Porapakkarm, 2019. "Reducing Medical Spending of the Publicly Insured: The Case for a Cash-out Option," American Economic Journal: Economic Policy, American Economic Association, vol. 11(3), pages 390-426, August.
    • Handle: RePEc:aea:aejpol:v:11:y:2019:i:3:p:390-426
    Note: DOI: 10.1257/pol.20160433
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    Cited by:

    1. Youngsoo Jang, 2023. "Credit, Default, And Optimal Health Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 943-977, August.
    2. Zhixiu Yu, 2021. "Why Are Older Men Working More? The Role of Social Security," Working Papers 2021-041, Human Capital and Economic Opportunity Working Group.
    3. Reona Hagiwara, 2022. "Welfare Effects of Health Insurance Reform: The Role of Elastic Medical Demand," IMES Discussion Paper Series 22-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Yu, Zhixiu, 2024. "Why are older men working more? The role of social security," Journal of Public Economics, Elsevier, vol. 231(C).
    5. Hagiwara, Reona, 2024. "Welfare effects of health insurance reform: The role of elastic medical demand," Economic Modelling, Elsevier, vol. 141(C).

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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