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. 2018 May:11:27-40.
doi: 10.1016/j.jeoa.2017.06.002. Epub 2017 Jun 16.

Macroeconomic Effects of Medicare

Juan Carlos Conesa  1 , Daniela Costa  2 , Parisa Kamali  2 , Timothy J Kehoe  3 , Vegard M Nygard  2 , Gajendran Raveendranathan  2 , Akshar Saxena  4
Affiliations

Macroeconomic Effects of Medicare

Juan Carlos Conesa et al. J Econ Ageing. 2018 May.

Abstract

This paper develops an overlapping generations model to study the macroeconomic effects of an un-expected elimination of Medicare. We find that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we find lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we find that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.

Keywords: E21; E62; H51; I13; Medicaid; Medicare; overlapping generations; steady state; transition path.

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Figures

Figure 1
Figure 1
Medical expenses by age and health state (MEPS)
Figure 2
Figure 2
Medical expense risk by age (MEPS)
Figure 3
Figure 3
Distribution of medical expenses by age and provider
Figure 4
Figure 4
Medicaid enrollment by age
Figure 5
Figure 5
Transition from economy with Medicare to economy without: Aggregates
Figure 6
Figure 6
Transition from economy with Medicare to economy without: Ex-ante welfare on unborn consumer
Figure 7
Figure 7
Percentage of votes in favor of reform by age
Figure 8
Figure 8
Percentage of votes in favor of reform by age and health
See this image and copyright information in PMC

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