Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance / David F. Bradford, Derrick A. Max.

Format:

Book

Author/Creator:

Bradford, David F.

Contributor:

National Bureau of Economic Research.

Max, Derrick A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5514.

NBER working paper series no. w5514

Language:

English

Subjects (All):

Budget deficits.

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Implicit Budget Deficits

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Mass. : National Bureau of Economic Research, 1996.

Summary:

Since a typical regulatory mandate can be equated in its economic effect to a combination of an expenditure program and a tax program, observers have often suggested that it would serve consistent public policy to bring regulatory decisions into the same budgetary framework. This paper concerns an important example of a regulatory program that would mimic deficit financing in effecting a transfer of fiscal burdens toward younger and future generations, the mandated purchase of (or provision by employers of) health care insurance under a system of community rating, under which the same price is charged for health insurance for all comers, regardless of age, sex, or health condition. Such a shift would result in redistributions of burdens across birth cohorts, in this case from existing, especially middle-aged birth cohorts toward future generations. Using data from a variety of sources we conclude the effect would be substantial. For our central-case assumptions about discount, health care cost, and productivity growth rates, and about the locus of responsibility for paying health care bills, a shift to community rating is estimated to generate gains for people over age 30 in 1994, $16,700 per person aged 50 for example, at the cost to younger cohorts. Those born in 1994 would acquire an extra payment obligation with a discounted value of $7,100 each. The burden passed along to future generations can be described by a $9,300 per capita tax at birth (growing with productivity). The analysis makes clear that the regula- tory policy shift, with no direct budgetary implications, would have an intergenerational transfer effect comparable to what would be considered a major change in on-budget tax or transfer programs.

Notes:

Print version record

March 1996.