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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

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

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