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Health insurance, endogenous medical progress, health expenditure growth, and welfare

Ivan Frankovic and Michael Kuhn

Journal of Health Economics, 2023, vol. 87, issue C

Abstract: We study the impact of health insurance expansion on medical spending, longevity and welfare in an OLG economy in which individuals purchase health care to lower mortality and medical progress is profit-driven. Three sectors are considered: final goods production; a health care sector, selling medical services to individuals; and an R&D sector, selling increasingly effective medical technology to the health care sector. We calibrate the model to the development of the US economy/health care system from 1965 to 2005 and study numerically the impact of the insurance expansion. We find that more extensive health insurance accounts for a large share of the rise in US health spending but also boosts the rate of medical progress. A welfare analysis shows that while the subsidization of health care through health insurance creates excessive health care spending, the gains in life expectancy brought about by induced medical progress more than compensate for this.

Keywords: Health care spending; Health insurance; Intergenerational externality; Medical progress; Moral hazard; Overlapping generations (search for similar items in EconPapers)
JEL-codes: D15 I11 I12 I18 J11 J17 O31 O41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhecon:v:87:y:2023:i:c:s016762962200131x

DOI: 10.1016/j.jhealeco.2022.102717

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Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

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