← Search

American Economic Review Vol. 101 No. 7 2011

Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence

Hanming Fang1; Alessandro Gavazza2

1 Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104. · 2 Department of Economics, Leonard N. Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012.

Abstract

We investigate the effects of the institutional settings of the US health care system on individuals' life-cycle medical expenditures. Health is a form of general human capital; labor turnover and labor-market frictions prevent an employer-employee pair from capturing the entire surplus from investment in an employee’s health. Thus, the pair underinvests in health during working years, thereby increasing medical expenditures during retirement. We provide empirical evidence consistent with the comparative statics predictions of our model using the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (HRS). Our estimates suggest significant inefficiencies in health investment in the United States.

DOI
10.1257/aer.101.7.3047
Volume
101
Issue
7
Pages
3047-3077
Language
en
Sources
openalex bibtex:phds-export.bib crossref

Cite