Chapter

Financing Medicare

Orazio Attanasio, Sagiri Kitao and Giovanni L. Violante

in Demography and the Economy

Published by University of Chicago Press

Published in print January 2011 | ISBN: 9780226754727
Published online February 2013 | e-ISBN: 9780226754758 | DOI: http://dx.doi.org/10.7208/chicago/9780226754758.003.0010
Financing Medicare

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This chapter deals with the long-term financing of Medicare in the United States. The chapter provides a model that features employer-provided health insurance, Medicare for the elderly, and Social Security. It is calibrated to match key statistics for the U.S. economy. It has both taxes on capital income and labor income. The model has a changing demographic structure and exogenous increases in health costs. Individuals face risk in terms of their own health status and health determines household productivity, mortality rates, and health expenditure. The chapter looks at three possible policy reforms and their impact on 2080 tax rates: increases in Medicare premiums, changes in Medicare coverage, and changes in retirement age. Each of them has the potential to lower future labor tax rates, but the demographics and increases in health costs still result in a future of higher taxes.

Keywords: financing Medicare; equilibrium analysis; fiscal pressure; overlapping-generations model; U.S. economy; demographic structure; health costs; face risk; health insurance; labor tax rate; health status; household productivity; mortality rates; health expenditure

Chapter.  14816 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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