TY - JOUR
T1 - The long-run effects of pay-as-you-go medicare on savings and consumer welfare
AU - HAU, Arthur
PY - 2005/9
Y1 - 2005/9
N2 - This article extends earlier results on the short-run effects of a change in insurance coverage on savings and consumer welfare to the case of the long-run effects of a change in pay-as-you-go Medicare coverage on savings and consumer welfare in an overlapping-generations economy. The notion of steady-state actuarial fairness is introduced. It is found that under some nonrestrictive assumptions, a rise in Medicare coverage reduces steady-state per capita capital and savings, provided that individuals are risk averse and prudent. Moreover, risk aversion and prudence guarantee that a rise in Medicare coverage raises steady-state welfare when Medicare is steady-state actuarial fair or favorable. Simulation results reinforce these findings. Moreover, they show that steady-state actuarial unfavorableness may or may not reverse the last conclusion.
AB - This article extends earlier results on the short-run effects of a change in insurance coverage on savings and consumer welfare to the case of the long-run effects of a change in pay-as-you-go Medicare coverage on savings and consumer welfare in an overlapping-generations economy. The notion of steady-state actuarial fairness is introduced. It is found that under some nonrestrictive assumptions, a rise in Medicare coverage reduces steady-state per capita capital and savings, provided that individuals are risk averse and prudent. Moreover, risk aversion and prudence guarantee that a rise in Medicare coverage raises steady-state welfare when Medicare is steady-state actuarial fair or favorable. Simulation results reinforce these findings. Moreover, they show that steady-state actuarial unfavorableness may or may not reverse the last conclusion.
KW - Consumer welfare
KW - Medical expense risk
KW - Pay-as-you-go Medicare
KW - Precautionary savings
KW - Steady-state actuarially fair
UR - https://www.scopus.com/inward/record.uri?eid=2-s2.0-24944467472&doi=10.1177%2f1091142105277889&partnerID=40&md5=f5fe6924a0ed2f5df074b9940b449f81
U2 - 10.1177/1091142105277889
DO - 10.1177/1091142105277889
M3 - Journal Article (refereed)
SN - 1091-1421
VL - 33
SP - 634
EP - 655
JO - Public Finance Review
JF - Public Finance Review
IS - 5
ER -