Working Paper: NBER ID: w11609
Authors: Amy Finkelstein; Robin McKnight
Abstract: We study the impact of the introduction of one of the major pillars of the social insurance system in the United States: the introduction of Medicare in 1965. Our results suggest that, in its first 10 years, the establishment of universal health insurance for the elderly had no discernible impact on their mortality. However, we find that the introduction of Medicare was associated with a substantial reduction in the elderly's exposure to out of pocket medical expenditure risk. Specifically, we estimate that Medicare's introduction is associated with a forty percent decline in out of pocket spending for the top quartile of the out of pocket spending distribution. A stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover between half and three-quarters of the costs of the Medicare program. These findings underscore the importance of considering the direct insurance benefits from public health insurance programs, in addition to any indirect benefits from an effect on health.
Keywords: Medicare; elderly health insurance; out-of-pocket spending; mortality
JEL Codes: H51; I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicare introduction in 1965 (I13) | No discernible impact on overall elderly mortality (I12) |
| Medicare introduction in 1965 (I13) | Significant reduction in out-of-pocket medical expenditures for the elderly (H51) |
| Reduction in out-of-pocket medical expenditures for the elderly (H51) | Welfare gains could cover up to 75% of Medicare's costs (I18) |