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Social Insurance, Private Health Insurance and Individual Welfare

Listed author(s):
  • Kai Zhao

    (University of Connecticut)

Registered author(s):

This paper studies the impact of social insurance on private insurance and individualwelfare in a dynamic general equilibrium model with uncertain medical expenses and individual health insurance choices. I find that social insurance (modeled as a combination of the minimum consumption floor and the Medicaid program) crowds out private health insurance coverage, and this crowd-out is important for understanding the welfare consequences of social insurance. When the crowding out effect on private insurance is taken into account, the welfare gain from social insurance becomes substantially smaller and under some certain conditions it becomes a welfare loss. The intuition for these results is that the crowding out effect partially offsets the insurance benefits provided by social insurance. The findings of the paper suggest that it is important to consider the endogenous responses on private insurance choices when examining any social insurance policy reform. They also imply that the existence of social insurance programs may be one reason why some Americans do not buy any health insurance.

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File URL: http://web2.uconn.edu/economics/working/2016-01.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2016-01.

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Length: 35 pages
Date of creation: Jan 2016
Handle: RePEc:uct:uconnp:2016-01
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University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063

Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/

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  1. Svetlana Pashchenko & Ponpoje Porapakkarm, 2013. "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 383-404, July.
  2. Jeske, Karsten & Kitao, Sagiri, 2009. "U.S. tax policy and health insurance demand: Can a regressive policy improve welfare?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 210-221, March.
  3. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the Elderly Save? The Role of Medical Expenses," NBER Working Papers 15149, National Bureau of Economic Research, Inc.
  4. De Nardi, Mariacristina & Yang, Fang, 2016. "Wealth inequality, family background, and estate taxation," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 130-145.
  5. Kai Zhao, 2014. "Social Security and the Rise in Health Spending," Working papers 2014-04, University of Connecticut, Department of Economics.
  6. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association, vol. 47(2), pages 317-339, June.
  7. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  8. Frank Caliendo & Nick Guo & Roozbeh Hosseini, 2014. "Social Security is NOT a Substitute for Annuity Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 739-755, October.
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