The Welfare Implications of Health Insurance

25 Pages Posted: 1 Aug 2018

See all articles by Anup Malani

Anup Malani

University of Chicago - Law School; University of Chicago Pritzker School of Medicine; Resources for the Future; National Bureau of Economic Research (NBER)

Sonia Jaffe

University of Chicago

Date Written: July 2018

Abstract

We analyze the financial value of insurance when individuals have access to credit markets. Loans allow consumers to smooth shocks across time, decreasing the value of the smoothing (across states of the world) provided by insurance. We derive a simple formula for the incremental value of insurance and show how it depends on individual age, health, and income and on the features of available loans. Our central contribution is to derive formulas for aggregate welfare that can be taken to data from typical studies of health insurance. We provide both exact formulas that can be taken to data on the distribution of medical expenditures and income and an approximate formula for aggregate data on medical expenditure. Using the Medical Expenditure Panel Survey we illustrate how the incremental value of insurance is decreasing with access to loans. For consumers in the sickest decile, access to a five-year loan decreases the incremental value of insurance by $338 (6%) on average and $3,433 (36%) for the poorest consumers. We also find that our approximate formula is a reasonable proxy for the exact one in our data.

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Suggested Citation

Malani, Anup and Jaffe, Sonia, The Welfare Implications of Health Insurance (July 2018). NBER Working Paper No. w24851. Available at SSRN: https://ssrn.com/abstract=3218103

Anup Malani (Contact Author)

University of Chicago - Law School ( email )

1111 E. 60th St.
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773-702-9602 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/malani/

University of Chicago Pritzker School of Medicine

Chicago, IL 60637
United States

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sonia Jaffe

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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