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Creator: Conesa, Juan Carlos, Costa, Daniela, Kamali, Parisa , Kehoe, Timothy Jerome, 1953-, Nygaard, Vegard M., Raveendranathan, Gajendran, and Saxena, Akshar Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 548 Abstract:
This paper develops an overlapping generations model to study the macroeconomic effects of an unexpected elimination of Medicare. We ﬁnd that a large share of the elderly respond by substituting Medicaid for Medicare. Consequently, the government saves only 46 cents for every dollar cut in Medicare spending. We argue that a comparison of steady states is insufficient to evaluate the welfare effects of the reform. In particular, we ﬁnd lower ex-ante welfare gains from eliminating Medicare when we account for the costs of transition. Lastly, we ﬁnd that a majority of the current population benefits from the reform but that aggregate welfare, measured as the dollar value of the sum of wealth equivalent variations, is higher with Medicare.
Palabra clave: Overlapping generations, Steady state, Medicare, Medicaid, and Transition path Tema: E21 - Macroeconomics: Consumption; Saving; Wealth, I13 - Health Insurance, Public and Private, E62 - Fiscal Policy, and H51 - National Government Expenditures and Health