Research

Abstract: I study the ACA’s Medicaid expansion as an automatic stabilizer in a Bewley-Huggett-Aiyagari model with joint health and employment risk. In partial equilibrium, Medicaid crowds out precautionary saving, producing a Simpson’s paradox: every household gains strictly pointwise, yet aggregate welfare declines as the asset distribution shifts leftward. In general equilibrium, an endogenous rise in the equilibrium interest rate partially restores welfare, which remains positive under all balanced-budget financing strategies. Building on these steady-state results, I extend the model to a HANK framework to quantify the stabilization power of public health insurance programs over the business cycle, providing a structural counterpart to McKay and Reis (2016) for health-care benefits.