@techreport{NBERw18571,
 title = "Health Care Reforms and the Value of Future Public Liabilities",
 author = "Kristopher J. Hult and Tomas J. Philipson",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "18571",
 year = "2012",
 month = "November",
 URL = "http://www.nber.org/papers/w18571",
 abstract = {Many developed countries are grappling with the large public liabilities attributable to health care subsidy programs. However, there has been no explicit analysis by economists of how various reforms affect future spending growth and, consequently, how they affect future public program liabilities. We analyze how approval and reimbursement reforms affect public liabilities through their impact on the returns to medical innovation, which many argue is a central factor driving spending growth. We separate how reforms impact innovative returns through changes to expected cash flows, their risk-adjustment, and their timing and defaults implied by the approval process. We argue that the innovation effects of common reforms imply that cutbacks in government programs may raise government liabilities and expansions may lower them. We quantitatively calibrate the implications of these arguments for the US Medicare program and find that further means-testing the program may substantially raise innovative returns and thereby put upward pressure on Medicare liabilities.},
}