Macroeconomic Consequences of Alternative Reforms to the Health Insurance System in the U.S.

This paper examines the macroeconomic and welfare implications of alternative re- forms to the U.S. health insurance system. In particular, I study the effect of the expansion of Medicare to the entire population, the expansion of Medicaid, an individ- ual mandate, the removal of the tax break to purchase group insurance and providing a refundable tax credit for insurance purchases. To do so, I develop a stochastic OLG model with heterogenous agents facing uncertain health shocks. In this model individ- uals make optimal labor supply, health insurance, and medical usage decisions. Since buying insurance is endogenous, my model captures how the reforms may affect the characteristics of the insured as well as health insurance premiums. I use the Medi- cal Expenditure Panel Survey to calibrate the model and succeed in closely matching the current pattern of health expenditure and insurance demand as observed in the data. Numerical simulations indicate that reforming the health insurance system has a quantitatively relevant impact on the number of uninsured, hours worked, and welfare.