R. Anton Braun, Karen A. Kopecky, and Tatyana Koreshkova

Working Paper 2013-2a
July 2013 (Revised February 2015)

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All individuals face some risk of ending up old, sick, alone, and poor. Is there a role for social insurance for these risks, and if so what is a good program? A large literature has analyzed the costs and benefits of pay-as-you-go public pensions and found that the costs exceed the benefits. This paper, instead, considers means-tested social insurance programs for retirees such as Medicaid and food stamp programs. We find that the welfare gains from these programs are large. Moreover, the current scale of means-tested social insurance in the United States is too small in the following sense: If we condition on the current Social Security program, increasing the scale of means-tested social insurance by one-third benefits both the poor and the affluent when a payroll tax is used to fund the increase.

JEL classification: E62, H31, H52, H55

Key words: means-tested social insurance, Medicaid, welfare, elderly, medical expenses

The authors thank Mark Bils, Erich French, Josep Pijoan-Mas, Victor Ríos, and Gianluca Violante for their helpful comments and Neil Desai and Taylor Kelley for excellent research assistance. They thank seminar participants at Concordia University, the Federal Reserve Banks of Atlanta and St. Louis, Hitotsubashi University, Indiana University, the University of North Carolina at Chapel Hill, the University of Pennsylvania, SUNY Albany, and the University of Tokyo. They are also grateful for comments from conference participants at the Wegman's Conference at the University of Rochester 2010, the 2012 Conference on Health and the Macroeconomy at the Laboratory for Aggregate Economics and Finance, UCSB, Fall 2012 Midwest Macroeconomics Meetings, 2013 MRRC Workshop, 2013 QSPS Summer Workshop, 2013 CIGS Conference on Macroeconomic Theory and Policy, 2013 SED Meetings and the 2013 Minnesota Macro Workshop. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to R. Anton Braun, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30303-2713, 404-498-8708, r.anton.braun@atl.frb.org; Karen A. Kopecky, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30303-2713, 404-498-8974, karen.kopecky@atl.frb.org; or Tatyana Koreshkova, Department of Economics, Concordia University and CIREQ, 1455 de Maisonneuve Boulevard West, Montreal, Quebec, H3G 1M8, Canada, 514-848-2424 ext. 3923, tatyana.koreshkova@concordia.ca.
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