Macroeconomic Effects of Medicare

Juan Carlos Conesa, Daniela Costa, Parisa Kamali, Timothy Kehoe, Vegard Nygaard, Gajendran Raveendranathan and Akshar Saxena (aksharsaxena@ntu.edu.sg)

No 548, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We ?nd that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we ?nd lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we ?nd that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.

Keywords: Transition path; Steady state; Medicaid; Overlapping generations; Medicare (search for similar items in EconPapers)
JEL-codes: E21 E62 H51 I13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-04-27
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 (10)

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Related works:
Journal Article: Macroeconomic effects of Medicare (2018)
Working Paper: Macroeconomic Effects of Medicare (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:548

DOI: 10.21034/sr.548

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