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What Does (Formal) Health Insurance Do, and For Whom?

Amy Finkelstein, Neale Mahoney, Matthew J. Notowidigdo

NBER Working Paper No. 23718
Issued in August 2017
NBER Program(s):Aging, Children, Health Care, Health Economics, Industrial Organization, Public Economics, Political Economy

Health insurance confers benefits to the previously uninsured, including improvements in health, reductions in out-of-pocket spending, and reduced medical debt. But because the nominally uninsured pay only a small share of their medical expenses, health insurance also provides substantial transfers to non-recipient parties who would otherwise bear the costs of providing uncompensated care to the uninsured. The prevalence of uncompensated care helps explain the limited take-up of heavily-subsidized public health insurance and the evidence that many recipients value formal health insurance at substantially less than the cost to insurers of providing that coverage. The distributional implications of public subsidies for health insurance depend critically on the ultimate economic incidence of the transfers they deliver to providers of uncompensated care.

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Document Object Identifier (DOI): 10.3386/w23718

Published: Amy Finkelstein & Neale Mahoney & Matthew J. Notowidigdo, 2018. "What Does (Formal) Health Insurance Do, and for Whom?," Annual Review of Economics, vol 10(1).

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