What Did Medicare Do (And Was It Worth It)?

Amy Finkelstein and Robin McKnight

No 11609, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on their mortality. However, we find that the introduction of Medicare was associated with a substantial reduction in the elderly's exposure to out of pocket medical expenditure risk. Specifically, we estimate that Medicare's introduction is associated with a forty percent decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover between half and three-quarters of the costs of the Medicare program. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.

JEL-codes: H51 I11 I18 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-hea, nep-ias and nep-pbe
Note: AG EH PE
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Citations: View citations in EconPapers (36)

Published as Finkelstein, Amy and Robin McKnight. "What Did Medicare Do? The Initial Impact of Medicare on Mortality and Out of Pocket Medical Spending." Journal of Public Economics 92 (2008): 1644-1669.

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