TY  - JOUR
AU  - Bradford, David F
AU  - Max, Derrick A
TI  - Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5514
PY  - 1996
Y2  - March 1996
DO  - 10.3386/w5514
UR  - http://www.nber.org/papers/w5514
L1  - http://www.nber.org/papers/w5514.pdf
N1  - Author contact info:
David F. Bradford
E-Mail: N/A user is deceased

Derrick Max
E-Mail: dmax@awrs.org
M1  - published as David F. Bradford, Derrick A. Max. "Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 11" MIT Press (1997)

AB  - Since a typical regulatory mandate can be equated in its economic effect to a combination of an expenditure program and a tax program, observers have often suggested that it would serve consistent public policy to bring regulatory decisions into the same budgetary framework.  This paper concerns an important example of a regulatory program that would mimic deficit financing in effecting a transfer of fiscal burdens toward younger and future generations, the mandated purchase of (or provision by employers of) health care insurance under a system of community rating, under which the same price is charged for health insurance for all comers, regardless of age, sex, or health condition. Such a shift would result in redistributions of burdens across birth cohorts, in this case from existing, especially middle-aged birth cohorts toward future generations. Using data from a variety of sources we conclude the effect would be substantial.  For our central-case assumptions about discount, health care cost, and productivity growth rates, and about the locus of responsibility for paying health care bills, a shift to community rating is estimated to generate gains for people over age 30 in 1994, $16,700 per person aged 50 for example, at the cost to younger cohorts.  Those born in 1994 would acquire an extra payment obligation with a discounted value of $7,100 each. The burden passed along to future generations can be described by a $9,300 per capita tax at birth (growing with productivity).  The analysis makes clear that the regula- tory policy shift, with no direct budgetary implications, would have an intergenerational transfer effect comparable to what would be considered a major change in on-budget tax or transfer programs.
ER  -