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Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option†

Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option† AbstractIndividuals’ medical spending has both necessary and discretionary components, which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework, the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between nonmedical and medical consumption. Next, using a rich quantitative life-cycle model, the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers. (JEL D91, G22, H51, I13, I18, I38) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option†

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20160433
Publisher site
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Abstract

AbstractIndividuals’ medical spending has both necessary and discretionary components, which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework, the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between nonmedical and medical consumption. Next, using a rich quantitative life-cycle model, the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers. (JEL D91, G22, H51, I13, I18, I38)

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: Aug 1, 2019

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