Maren Vairo, Wharton School – UPenn

Paper: Public Insurance Design and Coverage Gaps under Electoral Competition

Abstract: This paper develops a political economy model that endogenizes public health coverage levels. Voters differ in income and privately observed health risk. We first introduce a one-dimensional policy environment where candidates propose proportional public coverage financed by linear income taxes. Equilibrium coverage reflects the median voter’s preferred policy. Universal coverage arises when the median of a voter index capturing expected health losses relative to income exceeds its population mean. Simulations calibrated to U.S. data predict strong support for public coverage (81\% in the baseline). We next incorporate competitive private insurance markets with adverse selection into our electoral competition framework. Public coverage remains robust, declining only to 78\%. Last, we generalize the policy space to arbitrary income-contingent insurance menus, in effect allowing candidates to compete over mechanisms. The equilibrium policy coincides with a social planner’s choice weighted by endogenous voters’ policy sensitivity. This framework yields sharp predictions about which income groups receive full versus partial public coverage and provides a political-economy foundation for income-targeted programs like Medicaid.