We examine the welfare effects of Social Security in a general equilibrium environment with realistic labor income, mortality, and health risks. Finally, we discuss issues with controlling for time effects, sample attrition, the Markov assumption, and other modeling issues that can arise with categorical outcome variables. We also find that the lifecycle patterns are stable over time. We do not find significant differences of the conditional health transition probabilities between African Americans and the rest of the population. In addition, we find that young women have worse health prospects than their male counterparts but once individuals get older, being female is associated with transitioning into better health states with higher probabilities than men. However, the counting method overestimates the probabilities of transitioning into bad health states.

We find that the nonparametric counting method and the regression specifications based on ordered logit models produce similar results over the lifecycle. We align two year transition probabilities from HRS with one-year transition probabilities in MEPS using a stochastic root method assuming a Markov structure. We compare nonparametric counting methods and parametric methods where we control for individual characteristics as well as time and cohort effects. We use data from two representative US household surveys, the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (RAND-HRS) to estimate transition probability matrices between health states over the lifecycle from age 20–95. If, under the current US system, the government mandates GHI offers to become available to all workers, welfare gains can also be achieved. Using a consumption tax to finance the expansion of public health insurance leads to fewer distortions and improved welfare outcomes compared to income or payroll taxes. Tax financing instruments matter for welfare outcomes. Allowing private health insurance to coexist with UPHI plans, lowers the overall fiscal cost of UPHI and results in larger welfare gains. There exists an optimal coinsurance rate that balances the incentive and insurance trade-off of the UPHI system and maximizes welfare outcomes. Our simulations show that expanding Medicare to all workers-aka universal public health insurance (UPHI)-improves aggregate welfare if the coinsurance rate of UPHI is set to a higher level than the current Medicare coinsurance rate. Our analysis uses an overlapping generations model that comprises health risk, labor market risk, and key features of the US health insurance system such as private individual health insurance (IHI), employer sponsored group health insurance (GHI), means-tested public health insurance for low income individuals (Medicaid), and public health insurance for retired individuals (Medicare).

We quantitatively explore the economic effects of expanding the public and private components of the US health insurance system. Estimation biases introduced by cohort effects increase monotonically with age while time effects are non-monotone. Cohort effect biases dominate time effect biases in estimates of health expenditures that do not adequately control for both effects. It is demonstrated that failing to adequately control for time and cohort effects results in an overprediction of the effect of age on health expenditures, especially for agents older than 60. Time and cohort effects introduce a significant estimation bias into predictions of health expenditures per age group. After controlling for time and cohort effects, we find that medical expenditure-age profiles follow an upward trend. initial condition effects) by estimating a seminonparametric partial linear model. productivity effects, business cycle effects, etc.) and cohort effects (i.e. We separate pure age effects on health expenditure from time effects (i.e. health care spending using data from the Medical Expenditure Panel Survey (MEPS). In this paper we construct life-cycle profiles of U.S.

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