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Welfare Effects of Health Insurance Reform: The Role of Elastic Medical Demand

Reona Hagiwara
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Reona Hagiwara: Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: reona.hagiwara@boj.or.jp)

No 22-E-05, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Some medical demand is inelastic to price changes, but not all. In assessing the effects of public health insurance reform on welfare, I examine the role of medical demand elasticity by developing a computational general equilibrium life-cycle model of the Japanese economy. The model features individual heterogeneity in health, income, and wealth. If all medical demand is inelastic, reforming public health insurance by increasing copayments reduces welfare for all current generations. However, if some medical demand is elastic, as is empirically observed, such a reform would improve welfare for current young generations, including those with poor health and low income. Furthermore, future generations benefit from the reform and their welfare increases significantly.

Keywords: Copayment Increase; Price Elasticity of Medical Demand; Welfare Effects; Overlapping Generations (search for similar items in EconPapers)
JEL-codes: E21 H51 I13 I31 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-dge, nep-hea, nep-ias, nep-mac and nep-pbe
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