Healthcare costs in the US

The last issue of the NEP-DGE report has two interesting papers on the cost and financing of US healthcare. Instead of featuring just one paper, I decided to show both.

Aging and Health Financing in the US: A General Equilibrium Analysis

By Juergen Hung, Chung Tran and Matthew Chambers

http://d.repec.org/n?u=RePEc:tow:wpaper:2016-04&r=dge

We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36.6 percent increase in health expenditures by 2060. The group based health insurance (GHI) market shrinks, while the individual based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.

Health-care reform or labor market reform? A quantitative analysis of the Affordable Care Act

By Makoto Nakajima and Didem Tuzemen

http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp15-10&r=dge

An equilibrium model with firm and worker heterogeneity is constructed to analyze labor market and welfare implications of the Patient Protection and Affordable Care Act (ACA). Our model implies a signficant reduction in the uninsured rate from 22.6 percent to 5.6 percent. The model predicts a moderate positive welfare gain from the ACA, due to redistribution of income through Health Insurance Subsidies at the Exchange as well as Medicaid expansion. About 2.1 million more part-time jobs are created under the ACA, in expense of 1.6 million full-time jobs, mainly because the link between full-time employment and health insurance is weakened. The model predicts a small negative effect on total hours worked (0.36%), partly because of the general equilibrium effect.

These two papers show that the simple solutions for healthcare that are thrown about are not nearly enough. Things are complicated, and despite all the aspects that these papers have considered, I am sure there are more that are important (issues about lack of competition and administrative burden come to mind).

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