Project Management

Market Inefficiency, Insurance Mandate And Welfare: U.S. Health Care Reform 2010

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Executive Summary

In this paper, the authors develop a stochastic dynamic general equilibrium OverLapping generations (OLG) model with endogenous health capital to study the macroeconomic effects of the Affordable Care Act of March 2010 also known as the Obama health care reform. They find that the insurance mandate enforced with fines and premium subsidies successfully reduces adverse selection in private health insurance markets and subsequently leads to almost universal coverage of the working age population. On other hand, spending on health care services increases by almost 6 percent due to moral hazard of the newly insured. Notably, this increase in health spending is partly financed by the larger pool of insured individuals and by government spending.

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