Health care financing over the life cycle, universal medical vouchers and welfare

Links to Files
https://ideas.repec.org/p/tow/wpaper/2010-03.htmlPermanent Link
http://hdl.handle.net/11603/10779Metadata
Show full item recordDate
2010-012010-02-01
Type of Work
application/pdf48 pages
Text
working papers
Department
Towson University. Department of EconomicsCitation of Original Publication
Juergen Jung & Chung Tran, 2010. "Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare," Working Papers 2010-03, Towson University, Department of Economics, revised Feb 2010.Subjects
Public health insurancePrivate health insurance
Vouchers
Subsidies
Dynamic stochastic general equilibrium model
Equilibrium (Economics)
Endogenous health production
Abstract
In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.