Health Care Financing Over the Life Cycle, Universal Medical Vouchers and Welfare

50 Pages Posted: 2 Dec 2009 Last revised: 7 Apr 2010

See all articles by Juergen Jung

Juergen Jung

Towson University - Department of Economics

Chung Tran

Australian National University (ANU) - School of Economics

Date Written: November 25, 2009

Abstract

In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with health as a durable good to study the life-cycle behaviors of health care spending and financing. We show that a calibrated version of our generalized Grossman model is able to match the life-cycle trend of insurance take up ratios and average medical expenditure from the Medical Expenditure Panel Survey (MEPS) data in 2004/05. We then apply our model to analyze the macroeconomic implications of a counter factual health care reform in the U.S., 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 adjustments are critical in determining the performance of the voucher program.

Keywords: public health insurance, private health insurance, vouchers, dynamic stochastic general equilibrium model, endogenous health production

JEL Classification: H51, I18, I38, E6, E21, E62

Suggested Citation

Jung, Juergen and Tran, Chung, Health Care Financing Over the Life Cycle, Universal Medical Vouchers and Welfare (November 25, 2009). Available at SSRN: https://ssrn.com/abstract=1463792 or http://dx.doi.org/10.2139/ssrn.1463792

Juergen Jung

Towson University - Department of Economics ( email )

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

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

Chung Tran (Contact Author)

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

Arndt Building 25B
Canberra, Australian Capital Territory 0200
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
143
Abstract Views
1,416
rank
224,337
PlumX Metrics