Aging and Health Financing in the US:A General Equilibrium Analysis

Juergen Jung, Chung Tran and Matthew Chambers ()

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36:6 percent increase in health expenditures by 2060 and a 5 percent increase in GDP which is driven by the expansion of the healthcare sector. The group-based health insurance (GHI) market shrinks, while the individual-based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market and the stabilization of the GHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.

Keywords: Population aging; calibrated general equilibrium OLG model; health expenditures; Medicare & Medicaid; Affordable Care Act 2010; Grossman model of health capital; endogenous health spending and financing. (search for similar items in EconPapers)
JEL-codes: E21 E62 H51 I13 J11 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea, nep-ias and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Aging and health financing in the U.S.: A general equilibrium analysis (2017)
Working Paper: Aging and Health Financing in the U.S. A General Equilibrium Analysis (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2016-641

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