The Timing of Redistribution

We investigate whether late redistribution programs that can be targeted towards low income families can “dominate” early redistribution programs that cannot be targeted due to information constraints. We use simple two- period OLG models with heterogenous agents under six policy regimes: A model calibrated to the U.S. economy (benchmark), two early redistribution (lump sum) regimes, two (targeted) late redistribution regimes, and finally a model without taxes and redistribution. Redistribution programs are financed by a labor tax on the young and a capital tax on the old generation. We argue that late redistribution, if the programs are small in size, can dominate early redistribution in terms of welfare but not in terms of real output. Better targeting of low income households cannot offset savings distortions. In addition we find that optimal tax policy includes a positive capital tax rate.Taxation Timing, Transfer Timing, Redistribution, Capital Accumulation, Optimal Taxation, Capital Taxation

Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare

In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.Public health insurance; private health insurance; vouchers; dynamic stochastic general equilibrium model; endogenous health production

The Macroeconomics of Health Savings Accounts

We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. Unlike previous literature, our analysis relies on a dynamic general equilibrium framework with heterogenous agents. We endogenize health care expenditure and insurance choice, so that the model fully accounts for feedback effects from both factor markets and insurance markets. We then highlight the importance of including general equilibrium effects into the policy analysis. Specifically, our results from numerical simulations indicate that the success of HSAs depends critically on the productivity of health and the annual contribution limit to HSAs. In addition, we find that taxpayers can face substantial costs when HSAs are introduced to insure more people and to curb aggregate health expenditures.Health Savings Accounts, Consumer Driven Health Care Plans, Health Insurance, Privatization of Health Care, General Equilibrium Health Uncertainty Model, Numerical Simulation of Health Care Reform

Multiple Objective Step Function Maximization with Genetic Algorithms and Simulated Annealing

We develop a hybrid algorithm using Genetic Algorithms (GA) and Simulated Annealing (SA) to solve multi-objective step function maximization problems. We then apply the algorithm to a specific economic problem which is taken out of the corporate governance literature.Numerical computation, Genetic algorithms, Simulated annealing

Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010

In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. We find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. Notably, this increase in health spending is partly financed by the larger pool of insured individuals and by government spending. In order to finance the subsidies the government needs to either introduce a 2.7 percent payroll tax on individuals with incomes over $200,000, increase the consumption tax rate by about 1.1 percent, or cut government spending about 1 percent of GDP. A stable outcome across all simulated policies is that the reform triggers increases in health capital, decreases in labor supply, and decreases in the capital stock due to crowding out effects and tax distortions. As a consequence steady state output decreases by up to 2 percent. Overall, we find that the reform is socially beneficial as welfare gains are observed for most generations along the transition path to the new long run equilibrium.Affordable Care Act 2010; Endogenous Health Capital; Life-Cycle Health Spending and Financing; Dynamic Stochastic General Equilibrium

Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010

In this paper we develop a stochastic dynamic general equilibrium overlapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. We find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. Notably, this increase in health spending is partly financed by the larger pool of insured individuals and by government spending. In order to finance the subsidies the government needs to either introduce a 2.7 percent payroll tax on individuals with incomes over $200, 000, increase the consumption tax rate by about 1.1 percent, or cut government spending about 1 percent of GDP. A stable outcome across all simulated policies is that the reform triggers increases in health capital, decreases in labor supply, and decreases in the capital stock due to crowding out effects and tax distortions. As a consequence steady state output decreases by up to 2 percent. Overall, we find that the reform is socially beneficial as welfare gains are observed for most generations along the transition path to the new long-run equilibrium.

The Extension of Social Security Coverage in Developing Countries

We investigate the effects of extending the coverage of social security to uncovered elderly individuals in the informal sector in developing countries. We use a stochastic overlapping generations framework and incorporate important characteristics of developing countries including family transfers and a sizeable informal sector. Our calibrated model predicts that the introduction of a moderately sized social assistance program decreases steady state output by up to 3.25% and labor supply by up to 2.5%. In contrast to literature focusing on developed countries, the model predicts that extending the coverage of the social security system results in welfare gains for low income households. This result indicates that the insurance function and the redistribution function of the social assistance program dominate the distortionary effects in an environment without adequate risk sharing mechanisms and high inequality.Social Security Reform, Altruism, Informal Sector, Private Transfers, Savings, Labor Supply and Welfare

Subjective Health Expectations

In this paper, I derive subjective health expectations curves using the RAND-HRS data. These curves can be used in the estimation of structural life-cycle models. I first construct "health tables" from the RAND-HRS data and update subjective health expectations with information from these tables. The Bayesian updating mechanism corrects for focal point responses and reporting errors of the original health expectations variable. In addition, I test the quality of the health expectations measure and describe its correlation with various health indicators and other individual characteristics. I find that subjective health expectations do contain additional information that is not incorporated in subjective mortality expectations and that the rational expectations assumption cannot be rejected for subjective health expectations.Subjective Health Expectations, Health Expectations, Bayesian Updating of Expectations

The Macroeconomics of Health Savings Accounts

Revised version of http://hdl.handle.net/2022/2833We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible- and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers

The Macroeconomics of Health Savings Accounts

This paper has been revised. The revised version is at https://scholarworks.iu.edu/dspace/handle/2022/3116We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible- and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers