Macroeconomic Implications of Health Policy in the United States.

Abstract

This dissertation brings health policy forward to the macroeconomic arena and explores how policy reforms impact the U.S. economy and well-being of the people in the long run. This research builds a stochastic overlapping generations (OLG) model and applies it in a dynamic general equilibrium context. This study emphasizes heterogeneity among individuals whose actions ultimately guide the overall economy and calibrates the model based on micro-data. The first essay integrates endogenous insurance purchasing decisions and consumption-saving decisions in the model and compares health policies of universal insurance with and without individual mandates. This essay also investigates a policy that forbids discrimination by insurance companies on the basis of pre-existing conditions. It finds that these health-policy reforms cannot, at the same time, achieve three objectives: improving aggregate well-being, raising the fraction of the insured population, and banning discrimination. The second essay investigates government payment policies for managing the Medicare program. It evaluates economic outcomes at a new steady state, comparing two methods of financing cost growth. The first is payroll and wage-income taxation. The second is a “Medicare inflation tax,” a policy that reduces hospital reimbursement rates to help contain Medicare cost growth. Relative to payroll and wage-income taxation, a Medicare inflation tax raises the present discounted value of workers’ lifetime medical expenditures and reduces their savings. The Medicare inflation tax causes a redistribution of wealth that raises financial vulnerability of households with “fair” and “poor” health status. Steady-state output is permanently lower under the latter policy. The third essay analyzes elasticities of Social Security, Hospital Insurance, and wage-income tax rates with respect to their determinants in a dynamic general equilibrium. This study claims that analysis of tax expenditures and their impact on the fiscal health of entitlement programs must encompass household saving decisions. The analysis shows that excess growth in workers’ employer-sponsored health insurance (EHI) premiums, which outpaces income growth, has nonlinear effects on various tax rates. Tax exclusion rules magnify the nonlinear effects as high growth in EHI premiums directly leads to high growth in tax expenditures, which in turn raises forgone tax revenues of entitlement programs.