Health Care Financing Administration 1Health Care Spending and the Rest of the Economy:

Over the last few years, the INFORUM group at the University of Maryland has been working with the Office of the Actuary in the Health Care Financing Administration (HCFA) to develop a model to address various aspects of health care policy. We began with the INFORUM LIFT model, a macro-interindustry model, predecessors of which have been used since the late 1960s. A key question we set out to answer was:2 how much health care can we afford? It's not clear that we will ever answer that question. But, like all really interesting questions, attempts to find answers led to more questions and more work on the model. For example, to improve our view of the health care sector as a whole, we separated our single health care sector into nursing homes, physicians, hospitals, and other. We expanded the detail of the labor compensation package to include information on employer contributions for health insurance (as well as pensions and all other non-wage contributions). Janoska (1996) improved the modeling of the Medicare program by treating it as a subsidy for medical care (which reduces the price facing eligible consumers) rather than an income transfer (providing consumers with the income to purchase care or providing care directly). This work was incorporated in a crucial part of the model, the consumer spending equations, the general consumer demand system where relative prices across goods partially determine spending. Finally, we lengthened the simulation horizon from 2010 to 2050 an