Conclusion
In this paper, I examine the social insurance programs in a dynamic general equilibrium with endogenous health insurance choices. I find that social insurance (modeled as the combination of a minimum consumption floor and the Medicaid program) does not only distort saving and labor supply decisions, but also crowds out private health insurance coverage. However, despite the distorting effects, the net welfare consequence of removing social insurance is still negative in most cases studied in the paper. In addition, I find that the crowding out effect of social insurance on private health insurance is quantitatively large because means-tested social insurance programs do not only affect individuals who are already qualified for the programs, but also influence the decisions of individuals who will potentially become qualified after being hit by a series of large negative shocks. This finding implies that the existence of social insurance programs may be one of the reasons why many Americans do not buy any health insurance.
