What Did Medicare Do (and Was it Worth it)?

40 Pages Posted: 1 Nov 2005 Last revised: 22 Sep 2010

See all articles by Amy Finkelstein

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Robin McKnight

Wellesley College; National Bureau of Economic Research (NBER)

Date Written: September 2005

Abstract

We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on their mortality. However, we find that the introduction of Medicare was associated with a substantial reduction in the elderly%u2019s exposure to out of pocket medical expenditure risk. Specifically, we estimate that Medicare%u2019s introduction is associated with a forty percent decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover between half and three-quarters of the costs of the Medicare program. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.

Suggested Citation

Finkelstein, Amy and McKnight, Robin, What Did Medicare Do (and Was it Worth it)? (September 2005). NBER Working Paper No. w11609, Available at SSRN: https://ssrn.com/abstract=804255

Amy Finkelstein (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Robin McKnight

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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