Macroeconomic consequences of alternative reforms to the health insurance system in the United States

Abstract

This paper presents a dynamic general equilibrium model designed to examine the macroeconomic effects and welfare implications of alternative reforms to the US health insurance system. Specifically, it scrutinizes the extent to which health care reform can mitigate inefficiencies stemming from market imperfections in the health insurance industry. The model considers a stochastic overlapping generations framework, incorporating heterogeneous agents who are subject to uncertain health shocks. These individuals make optimal decisions regarding labor supply, health insurance, and medical services. Given that the optimal levels of medical consumption and hours worked are endogenous, this setting encapsulates general equilibrium effects. The model is calibrated to US data, and numerical simulations suggest that suitable adjustments to the present health insurance system can broaden coverage and enhance welfare. This improvement is achieved by reducing adverse selection, improving overall health status, and lessening tax distortions on labor supply.