Health Inequality: Role of Insurance and Technological Progress

The paper investigates the role of insurance and technological progress on the rising health inequality across income groups and its aggregate output costs for the US. We develop a continuous-time life-cycle model of an economy where individuals decide consumption-hours worked, whether to take up health insurance, when to visit a doctor, how much to invest in their health capital and whether to engage in bad behavior. A simple version of the model is able to explain about 50% of the gap in life-expectancy across income groups observed in data. In our model, consistent with the pattern in data, uninsured individuals, having deferred the treatment aren’t able to reap the benefits of the technological progress, thus resulting in poorer outcomes. The policy simulation with a plausible public health insurance scheme reduces the disparity in health outcomes to half. We use National Longitudinal Mortality Survey (NLMS), Mortality Differentials Across Communities (MDAC) and linked National Health Interview Survey (NHIS)- Medical Expenditures Panel Survey (MEPS) data to estimate the parameters of the model. As a cross-validation exercise using National Longitudinal Mortality Survey (NLMS) data, we exploit the state variation in Medicaid eligibility and find that among the working age individuals with low family income, Medicaid reduces the probability of dying by 9%. Using propensity score matching estimator, we find that private insurance reduces the probability of dying by upto 25% when compared to the uninsured.