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Is There "Too Much" Inequality in Health Spending Across Income Groups?

Author

Listed:
  • Laurence Ales
  • Roozbeh Hosseini
  • Larry E. Jones
Abstract
In this paper we study the efficient allocation of health resources across individuals. We focus on the relation between health resources and income (taken as a proxy for productivity). In particular we determine the efficient level of the health care social safety net for the indigent. We assume that individuals have different life cycle profiles of productivity. Health care increases survival probability. We adopt the classical approach of welfare economics by considering how a central planner with an egalitarian (ex-ante) perspective would allocate resources. We show that, under the efficient allocation, health care spending increases with labor productivity, but only during the working years. Post retirement, everyone would get the same health care. Quantitatively, we find that the amount of inequality across the income distribution in the data is larger that what would be justified solely on the basis of production efficiency, but not drastically so. As a rough summary, in U.S. data top to bottom spending ratios are about 1.5 for most of the life cycle. Efficiency implies a decline from about 2 (at age 25) to 1 at retirement. We find larger inefficiencies in the lower part of the income distribution and in post retirement ages.

Suggested Citation

  • Laurence Ales & Roozbeh Hosseini & Larry E. Jones, 2012. "Is There "Too Much" Inequality in Health Spending Across Income Groups?," NBER Working Papers 17937, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17937
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    References listed on IDEAS

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    Cited by:

    1. Job Boerma & Ellen McGrattan, 2018. "Health Capital Taxation," 2018 Meeting Papers 204, Society for Economic Dynamics.
    2. Laurence Ales & Roozbeh Hosseini & Larry Jones, "undated". "Is There ``Too Much'''' Inequality in Health Spending Across Income Groups?," GSIA Working Papers 2014-E18, Carnegie Mellon University, Tepper School of Business.
    3. Aisa, Rosa & Larramona, Gemma & Pueyo, Fernando, 2015. "Active aging, preventive health and dependency: Heterogeneous workers, differential behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 1-9.
    4. Jang, Youngsoo, 2019. "Credit, Default, and Optimal Health Insurance," MPRA Paper 95397, University Library of Munich, Germany.
    5. Cole, Harold & Krueger, Dirk & Kim, Soojin, 2012. "Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Co," CEPR Discussion Papers 9239, C.E.P.R. Discussion Papers.
    6. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings after Retirement: A Survey," Chicago Fed Letter, Federal Reserve Bank of Chicago.
    7. Nádia Simões & Nuno Crespo & Sandrina B. Moreira & Celeste A. Varum, 2016. "Measurement and determinants of health poverty and richness: evidence from Portugal," Empirical Economics, Springer, vol. 50(4), pages 1331-1358, June.
    8. Siddhartha Sanghi, 2019. "Health Inequality: Role of Insurance and Technological Progress," 2019 Meeting Papers 703, Society for Economic Dynamics.
    9. Schön, Matthias, 2015. "Unemployment, Sick Leave and Health," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113013, Verein für Socialpolitik / German Economic Association.
    10. Roozbeh Hosseini & Ali Shourideh, 2019. "Retirement Financing: An Optimal Reform Approach," Econometrica, Econometric Society, vol. 87(4), pages 1205-1265, July.
    11. Harold L. Cole & Soojin Kim & Dirk Krueger, 2012. "Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Costs," NBER Working Papers 18572, National Bureau of Economic Research, Inc.
    12. Janicki, Hubert P., 2014. "The role of asset testing in public health insurance reform," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 169-195.

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    More about this item

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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