Title

The long-run effects of pay-as-you-go medicare on savings and consumer welfare

Document Type

Journal article

Source Publication

Public Finance Review

Publication Date

9-1-2005

Volume

33

Issue

5

First Page

634

Last Page

655

Keywords

Consumer welfare, Medical expense risk, Pay-as-you-go Medicare, Precautionary savings, Steady-state actuarially fair

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.

DOI

10.1177/1091142105277889

Print ISSN

10911421

Publisher Statement

Copyright © 2005 Sage Publications. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Hau, A. (2005). The long-run effects of pay-as-you-go medicare on savings and consumer welfare. Public Finance Review, 33(5), 634-655. doi: 10.1177/1091142105277889

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