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Aging and Health Financing in the US:A General Equilibrium Analysis

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  • Juergen Jung
  • Chung Tran
  • Matthew Chambers

Abstract

We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36:6 percent increase in health expenditures by 2060 and a 5 percent increase in GDP which is driven by the expansion of the healthcare sector. The group-based health insurance (GHI) market shrinks, while the individual-based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market and the stabilization of the GHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.

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  • Juergen Jung & Chung Tran & Matthew Chambers, 2016. "Aging and Health Financing in the US:A General Equilibrium Analysis," ANU Working Papers in Economics and Econometrics 2016-641, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2016-641
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp641.pdf
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    Cited by:

    1. Guner, Nezih & Kulikova, Yuliya & Llull, Joan, 2018. "Marriage and health: Selection, protection, and assortative mating," European Economic Review, Elsevier, vol. 104(C), pages 138-166.
    2. repec:eee:hapoch:v1_713 is not listed on IDEAS

    More about this item

    Keywords

    Population aging; calibrated general equilibrium OLG model; health expenditures; Medicare & Medicaid; Affordable Care Act 2010; Grossman model of health capital; endogenous health spending and financing.;

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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