Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option

50 Pages Posted: 28 Dec 2016 Last revised: 5 Nov 2018

See all articles by Svetlana Pashchenko

Svetlana Pashchenko

University of Georgia

Ponpoje Porapakkarm

National Graduate Institute for Policy Studies (GRIPS, Tokyo)

Date Written: October 28, 2018

Abstract

Individuals' medical spending has both necessary and discretionary components which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between non-medical and medical consumption. Next, using a rich quantitative life-cycle model the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers.

Keywords: medical spending, health insurance, optimal taxation, life-cycle models, ex-post moral hazard

JEL Classification: D52, D91, E21, H53, I13, I18

Suggested Citation

Pashchenko, Svetlana and Porapakkarm, Ponpoje, Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option (October 28, 2018). Available at SSRN: https://ssrn.com/abstract=2890693 or http://dx.doi.org/10.2139/ssrn.2890693

Svetlana Pashchenko (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

Ponpoje Porapakkarm

National Graduate Institute for Policy Studies (GRIPS, Tokyo) ( email )

7-22-1 Roppongi, Minato-Ku
Tokyo 106-8677, Tokyo 106-8677
Japan
+818095248741 (Phone)

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