Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits

45 Pages Posted: 19 Nov 2019 Last revised: 6 Dec 2019

See all articles by Mark Shepard

Mark Shepard

Harvard University - Harvard Kennedy School (HKS)

Katherine Baicker

University of Chicago - Harris School of Public Policy

Jonathan S. Skinner

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 24, 2019

Abstract

There is increasing interest in expanding Medicare health insurance coverage in the U.S., but it is not clear whether the current program is the right foundation on which to build. Traditional Medicare covers a uniform set of benefits for all income groups and provides more generous access to providers and new treatments than public programs in other developed countries. We develop an economic framework to assess the efficiency and equity tradeoffs involved with reforming this generous, uniform structure. We argue that three major shifts make a uniform design less efficient today than when Medicare began in 1965. First, rising income inequality makes it more difficult to design a single plan that serves the needs of both higher- and lower-income people. Second, the dramatic expansion of expensive medical technology means that a generous program increasingly crowds out other public programs valued by the poor and middle class. Finally, as medical spending rises, the tax-financing of the system creates mounting economic costs and increasingly untenable policy constraints. These forces motivate reforms that shift towards a more basic public benefit that individuals can “top-up” with private spending. If combined with an increase in other progressive transfers, such a reform could improve efficiency and reduce public spending while benefiting low income populations.

JEL Classification: H4, H51, I13

Suggested Citation

Shepard, Mark and Baicker, Katherine and Skinner, Jonathan S., Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits (November 24, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-132, Available at SSRN: https://ssrn.com/abstract=3489203 or http://dx.doi.org/10.2139/ssrn.3489203

Mark Shepard

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Katherine Baicker (Contact Author)

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Jonathan S. Skinner

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2535 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
603-646-2535 (Phone)

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