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

In: Inquiries in the Economics of Aging

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  • Matthew 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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Suggested Citation

  • Matthew Eichner & Mark B. McClellan & David A. Wise, 1998. "Insurance or Self-Insurance? Variation, Persistence, and Individual Health Accounts," NBER Chapters, in: Inquiries in the Economics of Aging, pages 19-49, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:7079
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    References listed on IDEAS

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    1. Martin Feldstein & Jonathan Gruber, 1995. "A Major Risk Approach to Health Insurance Reform," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 103-130, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Rettenmaier, Andrew J. & Wang, Zijun, 2006. "Persistence in Medicare reimbursements and personal medical accounts," Journal of Health Economics, Elsevier, vol. 25(1), pages 39-57, January.
    2. 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 05-11, Stony Brook University, Department of Economics.
    3. John Bailey Jones & Eric French, 2002. "On the Distribution and Dynamics of Health Costs," Discussion Papers 02-03, University at Albany, SUNY, Department of Economics.
    4. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
    5. Kugler, Adriana D., 2005. "Wage-shifting effects of severance payments savings accounts in Colombia," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 487-500, February.
    6. Matthew J. Eichner & Mark B. McClellan & David A. Wise, 1997. "Health Expenditure Persistence and the Feasibility of Medical Savings Accounts," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 91-128, National Bureau of Economic Research, Inc.
    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," NBER Working Papers 12758, National Bureau of Economic Research, Inc.
    8. Herring, Bradley & Pauly, Mark V., 2006. "Incentive-compatible guaranteed renewable health insurance premiums," Journal of Health Economics, Elsevier, vol. 25(3), pages 395-417, May.

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