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The Impact of Medical and Nursing Home Expenses on Savings

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  • Karen A. Kopecky
  • Tatyana Koreshkova
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    Abstract

    We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States we show that savings for old-age, out-of-pocket expenses account for 13.5 per- cent of aggregate wealth, half of which is due to nursing home expenses; cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; and all newborns would benefit if social insurance for nursing home stays was made more generous.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.6.3.29
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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

    Volume (Year): 6 (2014)
    Issue (Month): 3 (July)
    Pages: 29-72

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    Handle: RePEc:aea:aejmac:v:6:y:2014:i:3:p:29-72

    Note: DOI: 10.1257/mac.6.3.29
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