Social security and the rise in health spending |
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| Affiliation: | 1. London Business School, Regent׳s Park, London NW1 4SA, United Kingdom;2. Department of Economics, University of Leicester, Leicester LE1 7RH, United Kingdom;1. Sao Paulo School of Economics-FGV, Brazil;2. Michigan State University, United States;1. University of Chicago Booth School of Business, USA;2. NBER, USA;1. Department of Economics, University of Missouri, 118 Professional Building, Columbia, MO 65211, USA;2. School of Business Administration, Kyungpook National University, South Korea;1. Hamburg School of Business Administration, Department of Finance and Accounting, Alter Wall 38, 20457 Hamburg, Germany;2. Ludwig-Maximilians-Universitaet Munich, Institute for Risk Management and Insurance, Schackstrasse 4, 80539 Munich, Germany |
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| Abstract: | In a quantitative model of Social Security with endogenous health, I argue that Social Security increases the aggregate health spending of the economy because it redistributes resources to the elderly whose marginal propensity to spend on health is high. I show by using computational experiments that the expansion of US Social Security can account for over a third of the dramatic rise in US health spending from 1950 to 2000. In addition, Social Security has a spill-over effect on Medicare. As Social Security increases health spending, it also increases the payments from Medicare, thus raising its financial burden. |
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| Keywords: | Social security Health spending Saving Longevity |
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