Health Care Reform or More Affordable Health Care?

Posted: 20 Nov 2017

See all articles by Diego B. P. Gomes

Diego B. P. Gomes

International Monetary Fund (IMF)

Pedro C. Ferreira

Graduate School of Economics at Fundacao Getulio Vargas (EPGE/FGV)

Date Written: June 30, 2017


This article investigates the impact on the U.S. economy of making health care more affordable. We compare health care cost reductions with the Patient Protection and Affordable Care Act (ACA) using a rich life cycle general equilibrium model with heterogeneous agents. We evaluate a wide range of cost reductions ranging from 0.64% (realistic and feasible) to 29.5% (equivalence with OECD). Our results show that the ACA is more effective in reducing uninsured population than all cost reductions considered. This result holds throughout the life cycle and for the most fragile part of the population: the poorest, the less educated, and those with bad health. Realistic and feasible cost reductions are less welfare improving than the ACA. The increase of welfare induced by the reform is around 7.8 times higher than the increase provided by cost reductions. Besides, the poorer are more benefited than the richer after the reform, while the opposite occurs after cost reductions. Finally, to obtain the same welfare increase of the ACA, medical costs have to decrease by 5.21%, a very hard task. These results provide support for the ACA against opponents who might present cost reductions as alternatives.

Keywords: Health care reform, Affordable health care, Health care costs, Health insurance, General equilibrium, Policy evaluation

JEL Classification: D91, E65, H51, I13, I18, I38

Suggested Citation

B. P. Gomes, Diego and Cavalcanti Ferreira, Pedro, Health Care Reform or More Affordable Health Care? (June 30, 2017). Journal of Economic Dynamics and Control, Vol. 79, 2017, Available at SSRN:

Diego B. P. Gomes (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Pedro Cavalcanti Ferreira

Graduate School of Economics at Fundacao Getulio Vargas (EPGE/FGV) ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
+55 21 559 5840 (Phone)
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