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Quantitative analysis of health insurance reform: separating regulation from redistribution

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  • Pashchenko, Svetlana
  • Porapakkarm, Ponpoje

Abstract

Two key components of the upcoming health reform in the U.S. are a new regulation of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured more than twice and generates substantial welfare gains. However, these welfare gains mostly come from the redistributive measures embedded in the reform. If the reform only reorganizes the individual market, introduces individual mandates but does not include any income-based transfers, the welfare gains are much smaller. This result is mostly driven by the fact that most uninsured people have low income.

Suggested Citation

  • Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:41193
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    More about this item

    Keywords

    health insurance; health reform; risk sharing; general equilibrium;

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I10 - Health, Education, and Welfare - - Health - - - General

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