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Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option

Svetlana Pashchenko () and Ponpoje Porapakkarm ()

No 2018-080, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: Individuals' medical spending has both necessary and discretionary components which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between non-medical and medical consumption. Next, using a rich quantitative life-cycle model the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers.

Keywords: medical spending; health insurance; optimal taxation; life-cycle model; ex-post moral hazard (search for similar items in EconPapers)
JEL-codes: D52 D91 E21 H53 I13 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-hea, nep-ias and nep-mac
Date: 2018-11
Note: M
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