The Provision of Public Universal Health Insurance: Impacts on Private Insurance, Asset Holdings and Welfare

This paper aims to investigate impacts of public provision of universal health insurance (UHI) in an environment with household heterogeneity and financial market incompleteness. Various UHI polices with both distortionary (payroll-tax) and nondistortionary (lump-sum tax) financing methods are compared to address the tradeoff between risk sharing and tax distortion as well as corresponding welfare implications. We undertake a dynamic equilibrium over-lapping-generations model with endogenous insurance purchasing and labor supply decisions to perform quantitative analyses. We find clear crowding out effects on asset holdings and private health insurance (PHI) purchases. The redistribution effects on welfare across generations and across wealth groups are investigated. We also identify the distortion caused by the payroll tax financing of the UHI, which reduces labor supply, further crowds out PHI and asset holdings and a welfare loss. When we compare UHI policies with various expenditure coverage rates, our result suggests that a lower coverage rate (50%) than the rates in most OECD countries may lead social welfare gains . ∗National Graduate Institute for Policy Studies, Tokyo, Japan. Email: [email protected]. †Research School of Economics, College of Business and Economics, The Australian National University, Acton, ACT 0200 Australia. Email: [email protected]. ‡All errors are ours. Acknowledgement will be added.