Optimal Social Insurance and Health Inequality

Abstract

This paper integrates into public economics a biologically founded, stochastic process of individual aging. The novel approach enables us to quantitatively characterize the optimal joint design of health and retirement policy behind the veil of ignorance for today and in response to future medical progress. Calibrating our model to Germany, our analysis suggests that the current social insurance policy instruments are set close to the (constrained) socially optimal levels, given proportional contribution rates for health and pension finance, the equivalence principle in the pension system, and a common statutory retirement age. Future progress in medical technology calls for a potentially drastic increase in health spending and a higher retirement age without lowering the pension contribution rate. Interestingly, from an ex ante point of view, medical progress and higher health spending are in conflict with the goal to reduce health inequality.

Aging in the USA: similarities and disparities across time and space

“…Since it is well known that mortality is lower for (American) women than for men and since the frailty index has been shown to be highly predictive of mortality, our study indirectly contributes to the morbidity-mortality paradox. The paradox is captured in the related literature by estimates of a stronger effect of the frailty-index score on mortality for men 4,33,34,50,51,54 . Potential explanations of the paradox within the frailty-index paradigm include the features that women suffer more often from non-lethal health deficits and that women visit doctors more often and report more diagnoses of deficits.…”

“…Here, we focus on regularities in the development of average health deficits in cohorts of subpopulations. As the number of average health deficits increases with age, the variance of health deficits also increases in a specific way, which has been explored in related literature 12,33 ; see 34 for a discussion of implications on health inequality in the framework of optimal health insurance and retirement policy.…”

Augmented wealth in Switzerland: the influence of pension wealth on wealth inequality

“…Mainly due to the rising life expectancy, the current Swiss pension system is unsustainable and needs to be reformed by a combination of increasing retirement age, additional funding or cuts in benefits. Besides economic arguments for different reforms (Börsch-Supan, 2016 ; Grossmann and Strulik, 2019 ), political feasibility is an important element to consider, as pension reforms need to pass a referendum in Switzerland. Current reform proposals for old-age pensions involve lower conversion rates for occupational pensions, increase in retirement age and increased funding (Häusermann, Kurer and Traber, 2019 ).…”

The marriage gap: Optimal aging and death in partnerships

“…Conceptually, this paper builds on our earlier study of the gender gap among singles (Schünemann et al, 2017b) and it relates more broadly to a strand of recent studies that utilize the health deficit approach to (re-)investigate the Preston curve (Dalgaard and Strulik, 2014a), the education gradient (Strulik, 2016), the historical evolution of retirement (Dalgaard and Strulik, 2017), the role of adaptation for health behavior and health outcomes (Schünemann et al, 2017a), and the optimal design of social welfare systems (Grossmann and Strulik, 2015).…”