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The Welfare Implications of Health Insurance

Author

Listed:
  • Sonia Jaffe

    (Becker Friedman Institute For Research in Economics)

  • Anup Malani

    (University of Chicago)

Abstract

We analyze the financial value of insurance when individuals have access to credit markets. Loans allow consumers to smooth shocks across time, decreasing the value of the smoothing (across states of the world) provided by insurance. We derive a simple formula for the incremental value of insurance and show how it depends on individual characteristics and the features of available loans. Our central contribution is to derive formulas for aggregate welfare that can be taken to data from typical studies of health insurance. We provide both exact formulas that can be taken to data on the distribution of medical expenditures and income and an approximate formula for aggregate data on medical expenditure. Using the Medical Expenditure Panel Survey we illustrate how the incremental value of insurance is decreasing with access to loans. For consumers in the sickest decile, access to a five-year loan decreases the incremental value of insurance by $338 (6%) on average and $3,433 (36%) for the poorest consumers. We also find that our approximate formula is a reasonable proxy for the exact one in our data.

Suggested Citation

  • Sonia Jaffe & Anup Malani, 2017. "The Welfare Implications of Health Insurance," Working Papers 2017-045, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2017-045
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    References listed on IDEAS

    as
    1. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 877-921.
    2. Raj Chetty, 2009. "Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 451-488, May.
    3. Ben Handel & Igal Hendel & Michael D. Whinston, 2015. "Equilibria in Health Exchanges: Adverse Selection versus Reclassification Risk," Econometrica, Econometric Society, vol. 83(4), pages 1261-1313, July.
    4. Nyman, John A., 1999. "The value of health insurance: the access motive," Journal of Health Economics, Elsevier, vol. 18(2), pages 141-152, April.
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    Cited by:

    1. Cesur, Resul & Freidman, Travis & Sabia, Joseph J., 2020. "War, traumatic health shocks, and religiosity," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 475-502.
    2. Helen Levy & Thomas Buchmueller & Sayeh Nikpay, 2019. "The Impact of Medicaid Expansion on Household Consumption," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(1), pages 34-57, January.

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    More about this item

    Keywords

    health insurance; credit access;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I00 - Health, Education, and Welfare - - General - - - General
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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