The Macroeconomics of Universal Health Insurance Vouchers (Preliminary and Incomplete)

We investigate a government financed voucher program that allows all Americans to buy health insurance in the private insurance market. We investigate whether health insurance vouchers are able to increase the number of people with health insurance and decrease aggregate health care spending that threatens the solvency of Medicare and Medicaid. We develop a multi-generation dynamic general equilibrium model with endogenous health spending and endogenous health insurance choice and calibrate the model to U.S. data. We then conduct a counterfactual policy experiment and introduce universal health insurance vouchers into this economy. Our analysis suggests that the decrease in health care expendiure as fraction of GDP is primarily due to a general equilibrium savings effect. This effect is caused by increased sales taxes that are needed to finance the health insurance vouchers. Decreased moral hazard due to replacing Medicare with private health insurance plays a minor role. In our model, universal health insurance vouchers transform an economy with high aggregate consumption rates, high health expenditure rates by old agents, and low aggregate savings rates into an economy with lower aggregate consumption rates, lower health expenditure rates by the old, higher health expenditure by the young, and higher aggregate savings rates. Health vouchers therefore seem promising in being able to sustainably finance health care expenditures while providing full health insurance coverage to the entire U.S. population. JEL: H51, I18, I38