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Health care reform or more affordable health care?

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  • Ferreira, Pedro Cavalcanti
  • Gomes, Diego B.P.

Abstract

This article investigates the impact on the U.S. economy of making health care more affordable. We compare health care cost reductions with the Patient Protection and Affordable Care Act (ACA) using a rich life cycle general equilibrium model with heterogeneous agents. We evaluate a wide range of cost reductions ranging from 0.64% (realistic and feasible) to 29.5% (equivalence with OECD). Our results show that the ACA is more effective in reducing uninsured population than all cost reductions considered. This result holds throughout the life cycle and for the most fragile part of the population: the poorest, the less educated, and those with bad health. Realistic and feasible cost reductions are less welfare improving than the ACA. The increase of welfare induced by the reform is around 7.8 times higher than the increase provided by cost reductions. Besides, the poorer are more benefited than the richer after the reform, while the opposite occurs after cost reductions. Finally, to obtain the same welfare increase of the ACA, medical costs have to decrease by 5.21%, a very hard task. These results provide support for the ACA against opponents who might present cost reductions as alternatives.

Suggested Citation

  • Ferreira, Pedro Cavalcanti & Gomes, Diego B.P., 2017. "Health care reform or more affordable health care?," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 126-153.
  • Handle: RePEc:eee:dyncon:v:79:y:2017:i:c:p:126-153
    DOI: 10.1016/j.jedc.2017.03.011
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    More about this item

    Keywords

    Health care reform; Affordable health care; Health care costs; Health insurance; General equilibrium; Policy evaluation;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • 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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