Abstract
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.
Original language | English |
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Pages (from-to) | 634-655 |
Number of pages | 22 |
Journal | Public Finance Review |
Volume | 33 |
Issue number | 5 |
DOIs | |
Publication status | Published - Sept 2005 |
Keywords
- Consumer welfare
- Medical expense risk
- Pay-as-you-go Medicare
- Precautionary savings
- Steady-state actuarially fair