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Macro Public Finance Lab @ ANU
Micro data and macro models for better economic policy

Macro-Health Economics

Papers

  1. Health Shocks, Portfolio Choice and Inequality
  2. Social Health Insurance: A Quantitative Exploration
  3. Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform

Health Shocks, Portfolio Choice and Inequality

Juergen Jung and Chung Tran  

[Paper] [Slides]

We study the dynamic effects of health shocks on savings, portfolio choice and wealth accumulation over the life cycle. We first document empirical facts that exposure to negative health shocks during the golden ages of the average lifecycle earnings profile shapes the pattern of savings and wealth portfolio composition, which has a long lasting impact on the wealth gap in retirement. Next, we quantify the dynamic effects of bad health on wealth inequality, using a lifecycle model of portfolio choice with household heterogeneity in terms of health status, earnings ability, health expenditure and insurance, and wealth portfolio. We find that the presence of multiple assets with heterogeneous returns significantly amplify the adverse effects of negative health shocks on the wealth gap in retirement. Finally, we highlight the contribution of public health insurance to improving wealth inequality by mitigating exposure to health expenditure shocks.

Social Health Insurance: A Quantitative Exploration

Juergen Jung and Chung Tran  

JOURNAL OF ECONOMIC DYNAMICS AND CONTROL, VOLUME 139, PAGES 104374| JUNE 2023

[Publication] [Paper] [Slides] [Blog]

We quantitatively explore the economic effects of expanding the public and private components of the US health insurance system. Our analysis uses an overlapping generations model that comprises health risk, labor market risk, and key features of the US health insurance system such as private individual health insurance (IHI), employer sponsored group health insurance (GHI), means-tested public health insurance for low income individuals (Medicaid), and public health insurance for retired individuals (Medicare). Our simulations show that expanding Medicare to all workers—aka universal public health insurance (UPHI)—improves aggregate welfare if the coinsurance rate of UPHI is set to a higher level than the current Medicare coinsurance rate. There exists an optimal coinsurance rate that balances the incentive and insurance trade-off of the UPHI system and maximizes welfare outcomes. Allowing private health insurance to coexist with UPHI plans, lowers the overall fiscal cost of UPHI and results in larger welfare gains. Tax financing instruments matter for welfare outcomes. Using a consumption tax to finance the expansion of public health insurance leads to fewer distortions and improved welfare outcomes compared to income or payroll taxes. If, under the current US system, the government mandates GHI offers to become available to all workers, welfare gains can also be achieved.

Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform

Juergen Jung and Chung Tran  

REVIEW OF ECONOMIC DYNAMICS, VOLUME 20, PAGES 132-159 | APRIL 2016

[Publication] [Paper] [Slides]

We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium overlapping generations model with endogenous health capital accumulation calibrated to match U.S. data on health spending and insurance take-up over the lifecycle. We find that the introduction of an insurance mandate and the expansion of Medicaid which are at the core of the ACA increase the insurance take-up rate of workers to almost universal coverage but decrease capital accumulation, labor supply and aggregate output. Penalties for not having insurance as well as subsidies to assist low income individuals’ purchase of insurance via health insurance market places do reduce the adverse selection problem in private health insurance markets and do counteract the crowding-out effect of the Medicaid expansion. The redistributional measures embedded in the ACA result in welfare gains for low income individuals in poor health and welfare losses for high income individuals in good health. The overall welfare effect depends on the size of the ex-post moral hazard effect, tax distortions and general equilibrium price adjustments.

This project was supported by the Agency for Healthcare Research and Quality (AHRQ, Grant No. R03HS019796), the Australian Research Council (ARC, Grant No. CE110001029), and funds from the Centers for Medicare & Medicaid Services, Office of the Actuary (CMS/OACT, Grant No. OA-393-2012-0018).