Health Risk and Insurance Over the Lifecycle Juergen Jung Chung Tran Towson University, Maryland Australian National University CBE - Conference May 2015 Jung and Tran (TU and ANU) Health Risk 2015 1 / 41
Disclaimer This project was supported by the Agency for Healthcare Research and Quality (AHRQ, Grant No.: R03HS019796), the Australian Research Council (ARC, Grant No.: CE110001029), CBE-Towson University Summer Research Support, and funds from the Centers for Medicare & Medicaid Services, Office of the Actuary (CMS/OACT). The content is solely the responsibility of the authors and does not represent the official views of the funding institutions. Jung and Tran (TU and ANU) Health Risk 2015 2 / 41
Introduction U.S. Medical vs. Non-Medical Consumption Medical vs. Non−Medical Consumption over the Life Cycle 16000 Non−Medical from F−K(2007) Medical from J−T(2010) Total 14000 12000 10000 $ 8000 6000 4000 2000 0 20 30 40 50 60 70 80 90 Age Figure 1: MEPS 1996-2007 Jung and Tran (TU and ANU) Health Risk 2015 3 / 41
Introduction Healthcare Financing in OECD Economies Figure 2: OECD (2004) Jung and Tran (TU and ANU) Health Risk 2015 4 / 41
Introduction U.S. Health Spending 35 Other Federal Non-interest Spending Medicare and Medicaid 30 Social Security Percentage of GDP 25 20 15 10 5 0 1962 1972 1982 1992 2002 2012 2022 2032 2042 2052 2062 2072 2082 Figure 3: CBO (2010) Jung and Tran (TU and ANU) Health Risk 2015 5 / 41
Introduction Our Research Program 1 Develop macroeconomic models with micro-foundations of health 2 Analyze economic aspects of health-related behavior 3 Study implications of healthcare policies The distributional effects: health inequality and wealth inequality The macroeconomic aggregates and welfare. Jung and Tran (TU and ANU) Health Risk 2015 6 / 41
Introduction This Paper 1 Develop a stochastic dynamic general equilibrium overlapping generations model with endogenous health expenditures and insurance choice 1 and a realistic structure of health insurance systems 2 that accounts for the patterns of health expenditures and insurance over the life cycle 1 the distribution of income and health expenditures observed in the data 2 2 Goal : quantify the effects of social health insurance on macroeconomic aggregates and 1 welfare. 2 Jung and Tran (TU and ANU) Health Risk 2015 7 / 41
Introduction Results Preview Lifecycle health risk induces demand for health insurance Private health insurance: very limited Competitive markets fail to insure lifecycle health risk Introduction of market regulations improves insurance coverage (up to 70%) small welfare gains(2.3%) Public (social) health insurance: important The European-style heath insurance system Aggregate output loss (9%) but large welfare gains (5.5%) The American-style insurance system: Mix of public and private insurance Aggregate output loss (7.5%) and welfare gain (between 3 and 4%) Jung and Tran (TU and ANU) Health Risk 2015 8 / 41
Introduction Related Literature 1 Micro-health economics Grossman (1972a,1972b), Grossman (2000) Pauly(1974), Rothschild and Stiglitz (1976) Besley (1989), Selden (1993), Blomqvist and Johansson (1997) 2 Quantitative macroeconomics/public finance Ayagari (1994), Imrohoroglu et al (1995), Hugget (1996) 3 Macro-health economics: Exogeneous health expenditure shocks: Kotlikoff (1988), Leven (1985), Palumbo (1999), Attanasio, Kitao and Violante (2008), Jeske and Kitao (2009), Pashchenko and Porapakkarm (2010), Janicki (2011) Endogenous health expenditures and insurance: Suen (2006), Feng (2009), and Jung and Tran (2008, 2010, 2013) Jung and Tran (TU and ANU) Health Risk 2015 9 / 41
The Model MODEL Jung and Tran (TU and ANU) Health Risk 2015 10 / 41
The Model The Model: Bewley (1986) and Grossman (1972) Overlapping generations model with heterogeneous agents lifespan: age 20 to 90 idiosyncratic shocks: labor productivity and health shocks health capital accumulation health as consumption and investment goods endogenous health spending endogenous health insurance choice Maket structure: goods, capital, labor markets, and incomplete financial markets Government-run health insurance systems Dynamic stochastic general equilibrium Jung and Tran (TU and ANU) Health Risk 2015 11 / 41
The Model The Model: Preferences and technology Preferences: u ( c j , l j , h j ) Health capital: � � m j , h j − 1 , δ h , ǫ h h j = h j Human capital (“labor”): � � ϑ, h j , ǫ l e j = e j Health and labor income shocks: � � � � ǫ h j +1 | ǫ h ∈ Π h ǫ l j +1 | ǫ l ∈ Π l Pr j and Pr j j j Jung and Tran (TU and ANU) Health Risk 2015 12 / 41
The Model The Model: Health Insurance Arrangements Private health insurance Public (social) health insurance Health insurance status: 0 if no insurance in j = 1 if private insurance 2 if public insurance Jung and Tran (TU and ANU) Health Risk 2015 13 / 41
The Model The Model: Out-of-pocket Health Spending Agent’s out-of-pocket health expenditures depend on insurance state p in j m × m j , if in j = 0 o ( m j ) = � p in j � ρ in j m × m j , if in j > 0 Jung and Tran (TU and ANU) Health Risk 2015 14 / 41
The Model The Model: Technology and Firms Final goods C production sector for price p C = 1: { K , L } { F ( K , L ) − qK − wL } max Medical services M production sector for price p m : { K m , L m } { p m F m ( K m , L m ) − qK m − wL m } max p m is a base price for medical services Price paid by households depends on insurance state: p in j � 1 + ν in j � = p m j ν in j is an insurance state dependent markup factor Profits are redistributed to all surviving agents Jung and Tran (TU and ANU) Health Risk 2015 15 / 41
The Model The Model: Household Problem - Timing � � � �� ���� � � + a’: asset + a: asset � + h’: health capital + h: health capital � + in’: insurance + in: insurance � � � Choices: � Shocks: + c: consumption Shocks: � + h : health + h’ : health + l: leisure + l : productivity + l’ : productivity � + m: medical services � � + a’: savings � + in’: insurance � x(j+1) = {j+1,a’, h’, in’, h’ , l’ } � h , l } � x(j) = {j, a, h, in, choice = {c, l, m, a’, in’} � Jung and Tran (TU and ANU) Health Risk 2015 16 / 41
The Model Insurance Sector J � � � � 1 + ω in � 1 − ρ in � p in � � µ j 1[ in j ( x j ) =1 ] m m j ( x j ) d Λ ( x j ) j =1 J � � 1[ in j ( x j ) =1 ]prem in � � = R µ j d Λ ( x j ) , j =1 Jung and Tran (TU and ANU) Health Risk 2015 17 / 41
The Model Government Budget J � � G + T SI + T Med = � τ C c ( x j ) + tax j ( x j ) � d Λ ( x j ) , µ j j =1 J where T SI = t SI � � µ j j ( x j ) d Λ ( x j ) and j =1 J J T Med = prem Med ( x j ) d Λ ( x j ) . � � 1 − ρ Med � p Med � � m j ( x j ) d Λ ( x j ) − � µ j µ j m j =1 j =1 Jung and Tran (TU and ANU) Health Risk 2015 18 / 41
The Model Pensions and Bequests Pensions: J � t Soc � µ j ( x j ) d Λ ( x j ) j j = J 1 +1 J 1 � τ Soc × ( e j ( x j ) × l j ( x j ) × w ) d Λ ( x j ) � = µ j j =1 Accidental Bequests: J 1 J � � t Beq � � µ j ( x j ) d Λ ( x j ) = µ j a j ( x j ) d Λ ( x j ) ˜ j j =1 j =1 Jung and Tran (TU and ANU) Health Risk 2015 19 / 41
The Model A Competitive Equilibrium Given the transition probability matrices and the exogeneous government policies, a competitive equilibrium is a collection of sequences of distributions of household decisions, aggregate capital stocks of physical and human capital, and market prices such that Agents solve the consumer problem The F.O.Cs of firms hold The budget constraints of insurances companies hold All markets clear All government programs and the general budget clear The distribution is stationary Jung and Tran (TU and ANU) Health Risk 2015 20 / 41
Calibration CALIBRATION Jung and Tran (TU and ANU) Health Risk 2015 21 / 41
Calibration Parameterization and Calibration Goal: to match U.S. data pre-ACA (before 2010) Data sources: MEPS: labor supply, health shocks, health expenditures, coinsurance rates PSID: initial asset distribution CENSUS: demographic profiles Previous studies: income process, labor shocks, aggregates Jung and Tran (TU and ANU) Health Risk 2015 22 / 41
Calibration The U.S. Health Insurance System Mixed system: Private health insurance for working population Individual based health insurance (IHI) Group based health insurance (GHI) Public health insurance Medicare for retirees Medicaid for the poor: 2 / 3 is retirees Key Facts: Low coverage: 47 million uninsured in 2010 ( ≈ 15%) High cost: 16% of GDP on health in 2010 and close to 20% by 2015 Jung and Tran (TU and ANU) Health Risk 2015 23 / 41
Calibration Moment Matching: Health Expenditures ✶✶ ❆♣♣❡♥❞✐① ❊✿ ❋✐❣✉r❡s Figure 4: Moment matching: Model vs. Data Jung and Tran (TU and ANU) Health Risk 2015 24 / 41 ❋✐❣✉r❡ ✶✿ ▼♦♠❡♥t ♠❛t❝❤✐♥❣ ✉s✐♥❣ ▼❊P❙ ✷✵✵✵✲✷✵✵✾✿ ❤❡❛❧t❤ s♣❡♥❞✐♥❣ ❛♥❞ ✐♥s✉r❛♥❝❡ t❛❦❡ ✉♣ r❛t❡s ♦✈❡r t❤❡ ❧✐❢❡✲❝②❝❧❡✳ ✻✵
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