essays in public finance and industrial organization a dissertation ...

CHAPTER 1. BANKRUPTCY 40
TaxSim program.
Appendix Table 1.15 shows the resulting distributions of medical costs and pre-
miums normalized by household size for comparison. Costs have a long right tail:
while 91 percent of persons incur less than $1,000 in a given year, about 1 in 36 incur
more than $5,000 and 1 in 69 incur more than $10,000 in medical costs. Calibrated
premiums drop steeply from $2,126 per person for a plan with first dollar coverage to
$1,009 per person for a $10,000 deductible plan.
As a reality check, Appendix Table 1.15 compares these premiums to quoted
individual market premiums for the median uninsured individual in the data (a 32-
year-old male), adjusted for inflation and cost-sharing. 48 The calibrated and market
premiums are quite similar. The calibrated premiums are slightly less expensive
for low deductible levels and somewhat more expensive for high deductibles. This
difference could be explained by selection or by heterogeneity in the moral hazard
parameter across the expenditure distribution.
48 The individual market premiums, from www.ehealthinsurance.com, are for a non-smoking 32year-old
male. The policies are issued by Aetna and start in May 2010. They are adjusted for
inflation using the Medical Care component of the CPI-U.