National Healthcare Systems: a dynamic general equilibrium approach
Researchers: Roee Bas1
- University of Haifa
Abstract: This thesis proposes a dynamic general equilibrium framework designed to incorporate some of the key features that characterize national healthcare systems. In particular, it incorporates an interaction between health and productivity, as well as between health and life expectancy.
We propose four different models that to some extent cover the attributes of alternative healthcare systems. The model is calibrated to match key characteristics of both Israel and US data. As the cure technology is taken to be the same in both countries, their differences as far as healthcare costs relative to GDP are associated by the model to a large efficiency advantage of the Israeli system.
One key feature of the calibration exercise is the introduction of a "healthcare frontier", whereby there is an upper bound to the level of cure that the respective medical technology can provide. The calibrated versions of the model find that despite the associated cost, most of the population finds it optimal to exhaust available cure options. This feature is responsible for the model's consistency with the observed link between increased healthcare costs and extended life expectancy. The result ensues from the assumption that extending the "healthcare frontier" implies that, at the margin, the cure technology becomes ever more expensive.
The results show that at the calibrated parameters, public involvement is welfare-improving. Improved productivity levels and improved healthcare efficiency mainly impact consumption, reducing the share of health expenditures out of output. These results are obtained because individuals lean towards the maximal treatment levels, which remain unaffected by these changes.
In contrast, changes directly reducing health shock probabilities (which we interpret to stand for preventive medicine), or the extension of the “healthcare frontier”, result in enhanced life expectancy and welfare improvements. Nevertheless, while the former acts to lower health expenditures, the latter improvements do the opposite, as they involve the addition of expensive treatments previously unavailable.
We propose four different models that to some extent cover the attributes of alternative healthcare systems. The model is calibrated to match key characteristics of both Israel and US data. As the cure technology is taken to be the same in both countries, their differences as far as healthcare costs relative to GDP are associated by the model to a large efficiency advantage of the Israeli system.
One key feature of the calibration exercise is the introduction of a "healthcare frontier", whereby there is an upper bound to the level of cure that the respective medical technology can provide. The calibrated versions of the model find that despite the associated cost, most of the population finds it optimal to exhaust available cure options. This feature is responsible for the model's consistency with the observed link between increased healthcare costs and extended life expectancy. The result ensues from the assumption that extending the "healthcare frontier" implies that, at the margin, the cure technology becomes ever more expensive.
The results show that at the calibrated parameters, public involvement is welfare-improving. Improved productivity levels and improved healthcare efficiency mainly impact consumption, reducing the share of health expenditures out of output. These results are obtained because individuals lean towards the maximal treatment levels, which remain unaffected by these changes.
In contrast, changes directly reducing health shock probabilities (which we interpret to stand for preventive medicine), or the extension of the “healthcare frontier”, result in enhanced life expectancy and welfare improvements. Nevertheless, while the former acts to lower health expenditures, the latter improvements do the opposite, as they involve the addition of expensive treatments previously unavailable.
Research number: M/16/2012
Research end date: 04/2017