Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010
take up rates, health spending levels, growth and other market aggregates
using a stochastic dynamic general equilibrium overlapping generations (OLG)
model with endogenous health capital a la Grossman that we calibrate to U.S. data.
We account for important institutional features of
the U.S. health insurance system including coverage via public health
insurance (Medicare and Medicaid) as well as employer provided group
insurance and insurance bought in the individual markets.
In addition, the model incorporates a production sector for health care services
in order to endogenize prices in the health care sector. We also allow for
differential pricing of medical services to account for market power of
insurance companies and government insurance institutions.
The model is calibrated to data from the Medical Expenditure Panel Survey,
data from the National Health Expenditure Accounts, as well as population
projections by CMS/OACT. The model is able to match the life-cycle profiles
of health expenditures and health insurance take up ratios from the data.
We then introduce the most salient features of the ACA reform into this
framework (i.e. premium subsidies for low income houseolds, penalties
for uninsured individuals, expansion of Medicaid, screening restrictions on
insurance companies, taxes on high income earners) and solve for a
new long run equilibrium.
Our main results are summarized as follows:
- The ACA leads to a significant expansion of Medicaid of up to 14
percent in worker coverage while causing small decreases in coverage rates
in the private health insurance markets. - The effects on health expenditures are relatively small.
- The reform causes efficiency and welfare losses in the long run. GDP
drops by 3 percent while consumption decreases by up to 2.5 percent. - The reform can be financed by a 0.77 percent tax on income over $200,000
plus a value added tax of about 0.5 percent. - In order to reach coverage rates for workers in the targeted 95
percent range, either a further expansion of Medicaid or much larger
subsidies or penalties are required. - Imposing an insurance mandate with more aggressive penalties or
subsidies leads to smaller losses in GDP than reaching similar insurance
coverage levels using a Medicaid expansion.
Aging and the Affordable Care Act:
- In combination with aging, the ACA reform consistently reduces health
care spending by shifting uninsured workers who pay a high price for medical
services into Medicaid which pays much lower prices. - The ACA reform increases the fraction of insured workers by up to 9
percent. Half of this expansion is due to the expansion of Medicaid, the
other half is due to increases in GHI coverage rates. - Premiums in the individual health care market rise as a result of the
subsidies.