The efficiency of “a fairly generous social safety net”

From “Is There ‘Too Much’ Inequality in Health Spending Across Income Groups?” by Laurence Ales, Roozbeh Hosseini, and Larry Jones:

A key policy debate in the U.S. focuses on reforming the health care component of the social safety net. This paper contributes to this policy discussion by characterizing, in a normative model of health care spending, the ex-ante efficient allocation. We are interested in two dimensions of the efficient allocation: the amount of health inequality driven by income inequality and the amount of health care resources spent on the least productive segment of the population. When comparing this allocation to what we see in the data we reach two main conclusions: first, we find that the ex ante efficiency implies a fairly generous social safety net: the efficient share of healthcare spending for the bottom quartile of the income distribution is about 18% of total healthcare spending for ages 25 to 35 and it increases gradually up to 25% at retirement. Second, the amount of inequality across the income distribution that is seen in the data is larger than what would be justified solely on the basis of production efficiency, but not drastically so. This difference is higher for higher ages and is particularly pronounced for post retirement individuals.

I have not read the entire paper.


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