Optimal Social Insurance and Health Inequality

Abstract

This paper integrates into public economics a biologically founded, stochastic process of individual ageing. The novel approach enables us to investigate the interaction between health and retirement policy in order to quantitatively characterize the optimal joint design of the social insurance system today and in response to future medical progress, and its implications for health inequality. Calibrating our model to Germany, we find that currently the public health and pension system is approximately optimal. Future progress in medical technology calls for a potentially drastic increase in health spending that typically shall be accompanied with a lower pension savings rate and a higher retirement age. Medical progress and higher health spending is predicted to lead to more health inequality.

The gender gap in mortality: How much is explained by behavior?

“…Conceptually, our paper is also related to a strand of recent studies utilizing the health deficit approach to (re-)investigate the Preston curve (Dalgaard and Strulik, 2014), the historical evolution of retirement (Dalgaard and Strulik, 2013), the education gradient (Strulik, 2012), ageconsumption profiles (Strulik, 2015c), the role of adaptation for health behavior and health outcomes (Schünemann et al, 2015), and the optimal design of social welfare systems (Grossmann and Strulik, 2015).…”