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Social Insurance, Private Health Insurance and Individual Welfare

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  • Kai Zhao

    (University of Connecticut)

Abstract

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.

Suggested Citation

  • Kai Zhao, 2016. "Social Insurance, Private Health Insurance and Individual Welfare," Working papers 2016-01, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2016-01
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Kai, 2015. "The impact of the correlation between health expenditure and survival probability on the demand for insurance," European Economic Review, Elsevier, vol. 75(C), pages 98-111.

    More about this item

    Keywords

    Saving; Uncertain Medical Expenses; Health Insurance; Means Testing;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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