Abstract
We study skill- and income-related differences in the access to health care as drivers of longevity inequality from a theoretical life-cycle as well as from a macroeconomic perspective. To do so, we develop an overlapping generations model populated by heterogeneous agents subject to endogenous mortality. We model two groups of individuals for whom differences in skills translate into differences in income and in the ability to use medical technology effectively in curbing mortality. We derive the skill- and age-specific individual demand for health care based on the value of life, the level of medical technology and the market prices. Calibrating the model to the development of the US economy and the longevity gap between the skilled and unskilled, we study the impact of rising effectiveness of medical care in improving individual health and examine how disparities in health care utilisation and mortality emerge as a consequence. In so doing, we explore the role of skill-biased earnings growth, skill-bias in the ability to access state-of-the art health care and to use it effectively, and skill-related differences in health insurance coverage. We pay attention to the macroeconomic feedback, especially to medical price inflation. Our findings indicate that skill-bias related to the effectiveness of health care explains a large part of the increase in the longevity with earnings-related differences in the utilisation of health care taking second place. Both channels tend to be reinforced by medical progress.
Highlights
Growing disparity in longevity across socioeconomic groups has been extensively documented for the US over the past couple of decades (Hummer and Hernandez 2013; Chetty et al 2016; Case and Deaton 2017).[1]
We find that about 19 percent of the increase are explained by skill-biased earnings growth, about 57 percent by skill-bias in medical effectiveness, and 5 percent by health insurance, whereas 24 percent of the increase are explained by the fact that the initial (1960) gap in earnings translates into a difference in health care spending which owing to medical progress leads to a widening gap in survival
The unskilled are subject to four disadvantages: they face lower earnings to begin with, they face lower earnings growth due to skill-biased technological change, they face a lag in access to the most effective medical technology, and they benefit less from health insurance
Summary
Growing disparity in longevity across socioeconomic groups has been extensively documented for the US over the past couple of decades (Hummer and Hernandez 2013; Chetty et al 2016; Case and Deaton 2017).[1]. While there is a considerable body of empirical literature on the access to health care (reviewed in Section 2 below), this is mostly based on particular case studies with a focus on either income differences or on differences in the utilisation of innovative health care Against this backdrop, this paper seeks to provide answers to the following set of questions: (i) How does the inequality in longevity emerge from the interplay of differential earnings and earnings growth, differential access to the most effective medical treatments, and differential health insurance coverage; (ii) what quantitative importance can be assigned to these channels; and (iii) how are these channels shaped by medical progress and by general equilibrium dynamics, in particular the development of the price for health care?. Some mathematical derivations and details on the numerical simulation have been relegated to an Appendix
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