Seminar Vol. 153

Title: Health, Health Insurance, and Income Inequality

Speaker: Chaoran Chen, National University of Singapore

Time: May 10th, 2019 13:30–14:45

Venue: Conference Room 106B, Zhonghui Building (IESR, JNU College of Economics)

About the speaker:

Chaoran Chen is an Assistant Professor at the National University of Singapore. He received his Ph.D. degree in Economics from the University of Toronto in 2017. His research interests are in macroeconomics and economic development. His work focuses on understanding the observed cross-country productivity differences through the lens of resource misallocation, structural transformation, and technology adoption, using both general equilibrium models and micro data. He is also interested in incomplete market models and inequality.

Abstract:

Individuals’ income affects their health status through the choice of health insurance coverage. We build a quantitative framework with incomplete markets and three shocks: health, health expenditure, and income. Individuals can choose to purchase health insurance, which hedges against health expenditure shocks and affects the transition of health status. We then estimate the model using micro data from PSID and MEPS. The estimated model can replicate the stylized facts on health insurance and inequality in the U.S. data. In the quantitative analysis, we find that endogenizing health through insurance choice substantially amplifies the impact of bad health on income inequality, due to the feedback effect that poor individuals are less likely to have insurance, and hence more likely to become unhealthy and then become poorer. The existence of consumption floor is the main cause of un-insurance among individuals. We also find that universal health insurance policy has a larger welfare gain in our framework than in a framework with exogenous health: it not only hedges against medical expenditure shocks, but also reduces health disparity and then income inequality.