Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/177369
Authors: 
Frankovic, Ivan
Kuhn, Michael
Year of Publication: 
2018
Series/Report no.: 
ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2018
Abstract: 
We study the impact of health insurance expansion in the US on health expenditure, longevity growth and welfare in an overlapping generations economy in which individuals purchase health care to lower mortality. We consider three sectors: 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 match the development of the US economy/health care system from 1965 to 2005 and study numerically the impact of the insurance expansion on health expenditures, medical progress and longevity. 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 moral hazard associated with subsidized health care creates excessive health care expenditure, the gains in life expectancy brought about by induced medical progress more than compensate for this. By mitigating an intergenerational externality associated with the longevity benefits from current medical innovation the expansion of health insurance constitutes a Pareto improvement.
Subjects: 
life-cycle model
health care spending
health insurance
medical progress
moral hazard
overlapping generations
JEL: 
D15
I11
I12
I18
J11
J17
O31
O41
Document Type: 
Working Paper

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