Health, Health Insurance, and Inequality

Abstract

This paper identifies a “health premium” of insurance coverage that the insured is more likely to stay healthy or recover from unhealthy status. We introduce this feature into the prototypical macro-health model and estimate the baseline economy by matching the observed joint distribution of health insurance purchase, health status and income over the life cycle. Quantitative analysis reveals that an individual’s insurance status has significant and persistent impact on health, which will be reinforced by and subsequently amplify the feedback effect of health on labor earnings and income inequality. Providing “Universal Health Coverage” would narrow health and life expectancy gaps, with a mixed effect on income distribution in absence of any additional redistribution of income or wealth.