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Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare

Juergen Jung () and Chung Tran

No 2010-03, Working Papers from Towson University, Department of Economics

Abstract: In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.

Keywords: Public health insurance; private health insurance; vouchers; dynamic stochastic general equilibrium model; endogenous health production. (search for similar items in EconPapers)
JEL-codes: H51 I18 I38 E6 E21 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-dge, nep-hea and nep-ias
Date: 2010-02, Revised 2010-02
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http://webapps.towson.edu/cbe/economics/workingpapers/2010-03.pdf First version, 2010 (application/pdf)

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Working Paper: Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare (2009) Downloads
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Persistent link: http://EconPapers.repec.org/RePEc:tow:wpaper:2010-03

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