Social Health Insurance: A Quantitative Exploration

72 Pages Posted: 27 Mar 2017 Last revised: 13 Apr 2022

See all articles by Juergen Jung

Juergen Jung

Towson University - Department of Economics

Chung Tran

Australian National University (ANU) - School of Economics

Date Written: January 31, 2022

Abstract

We quantitatively explore the economic effects of expanding the public and private components of the US health insurance system. Our analysis uses an overlapping generations model that comprises health risk, labor market risk, and key features of the US health insurance system such as private individual health insurance (IHI), employer sponsored group health insurance (GHI), means-tested public health insurance for low income individuals (Medicaid), and public health insurance for retired individuals (Medicare). Our simulations show that expanding Medicare to all workers—aka universal public health insurance (UPHI)—improves aggregate welfare if the coinsurance rate of UPHI is set to a higher level than the current Medicare coinsurance rate. There exists an optimal coinsurance rate that balances the incentive and insurance trade-off of the UPHI system and maximizes welfare outcomes. Allowing private health insurance to coexist with UPHI plans, lowers the overall fiscal cost of UPHI and results in larger welfare gains. Tax financing instruments matter for welfare outcomes. Using a consumption tax to finance the expansion of public health insurance leads to fewer distortions and improved welfare outcomes compared to income or payroll taxes. If, under the current US system, the government mandates GHI offers to become available to all workers, welfare gains can also be achieved.

Keywords: Health and income risks, Lifecycle, Incomplete insurance markets, Social insurance, Welfare, Optimal policy, Dynamic general equilibrium

JEL Classification: I13, D52, E62, H31

Suggested Citation

Jung, Juergen and Tran, Chung, Social Health Insurance: A Quantitative Exploration (January 31, 2022). Journal of Economic Dynamics and Control, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2940457 or http://dx.doi.org/10.2139/ssrn.2940457

Juergen Jung (Contact Author)

Towson University - Department of Economics ( email )

Baltimore, MD
United States
812-345-9182 (Phone)

HOME PAGE: http://https://juejung.github.io/

Chung Tran

Australian National University (ANU) - School of Economics ( email )

Arndt Building 25B
Canberra, Australian Capital Territory 0200
Australia

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