Social Security and the Rise in Health Spending: A Macroeconomic Analysis

Kai Zhao

No 1061, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, I develop a quantitative macroeconomic model of health spending and use it as a framework to evaluate potential explanations for the dramatic rise in US health spending as a share of GDP over the last half century, i.e. from 4% of GDP in 1950 to 13% of GDP in 2000. I find that the main existing explanations, expanded health insurance coverage and income growth, only account for 48% of the rise in US health spending from 1950 to 2000. I propose and evaluate a new explanation for the rise in health spending: the expansion of US Social Security. Social Security transfers resources from the young to the elderly (age 65+) whose marginal propensity to spend on health care is much higher than the young, thus raising the aggregate health spending of the whole economy. Furthermore, by raising people's expected future utility, Social Security increases the marginal benefit from investing in health and thus induces more health spending. I find that the expansion of US Social Security can account for a significant portion of the rise in health spending (21%). This finding suggests that another recently popular hypothesis for the unexplained residual, health technological progress, may be less important than what existing studies suggest (e.g. Newhouse (1992) and CBO (2008)). It also suggests that Social Security policies have a significant spill-over effect on public health care policies via the impact of Social Security on health spending, that future studies on Social Security policies should take into account.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2011/paper_1061.pdf (application/pdf)

Related works:
Working Paper: Social security and the rise in health spending: a macroeconomic analysis (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:1061

Access Statistics for this paper

More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann (chuichuiche@gmail.com).