Quantitative analysis of health insurance reform: Separating regulation from redistribution

Two key components of the recent U.S. health reform are a new regulation of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life-cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured more than twice and generates substantial welfare gains. These welfare gains mostly come from the redistributive measures embedded in the reform, rather than from the regulatory changes.     

WORK INCENTIVES OF MEDICAID BENEFICIARIES AND THE ROLE OF ASSET TESTING

Should asset testing be used in means‐tested programs? Focusing on Medicaid, we show that in the asymmetric information environment, there is a positive role for asset testing. Our tool is a general equilibrium model with heterogeneous agents. We find that 23% of Medicaid enrollees do not work in order to be eligible. These distortions are costly: If Medicaid eligibility could be linked to (unobservable) productivity, this results in substantial welfare gains. We show that asset testing can achieve a similar outcome when asset limits are allowed to be different for workers and nonworkers.