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The Impact of Medical and Nursing Home Expenses and Social Insurance Policies on Savings and Inequality

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Author Info
Karen Kopecky () (University of Western Ontario)
Tatyana Koreshkova () (Concordia University)

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Abstract

We consider a life-cycle model with idiosyncratic risk in labor 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 U.S., we find that nursing home expenses play an important role in the savings of the wealthy. In our policy analysis, we find that elimination of out-of-pocket expenses through public health care would reduce the capital stock by 12 percent, Medicaid and old-age welfare programs crowd out 44 percent of savings and greatly increase wealth inequality, and social security effects are influenced by out-of-pocket health expenses.

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File URL: http://alcor.concordia.ca/~tkoreshk/HealthPaper.pdf
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Publisher Info
Paper provided by Concordia University, Department of Economics in its series Working Papers with number 09006.

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Length: 59 pages
Date of creation: 20 Jun 2009
Date of revision:
Handle: RePEc:crd:wpaper:09006

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Related research
Keywords: health expenses; nursing home; idiosyncratic risk; savings; wealth inequality; old-age social insurance;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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  1. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721. [Downloadable!]
  2. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December. [Downloadable!] (restricted)
  3. Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Blackwell Publishing, vol. 66(2), pages 395-421, April. [Downloadable!] (restricted)
  4. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April. [Downloadable!] (restricted)
    Other versions:
  5. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April. [Downloadable!] (restricted)
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  6. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June. [Downloadable!]
    Other versions:
  7. Mariacristina De Nardi & Eric French & John Bailey Jones, 2006. "Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles," 2006 Meeting Papers 46, Society for Economic Dynamics.
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  8. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Ana Castaneda & Javier Diaz-Gimenez & Jose-Victor Rios-Rull, 2003. "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 818-857, August. [Downloadable!] (restricted)
  10. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August. [Downloadable!] (restricted)
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  11. Eric French & John Bailey Jones, 2004. "The Effects Of Health Insurance And Self-Insurance On Retirement Behavior," Working Papers, Center for Retirement Research at Boston College 2004-12, Center for Retirement Research. [Downloadable!]
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  12. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 460-497, March. [Downloadable!] (restricted)
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  13. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35. [Downloadable!]
  14. Andrew Dick & Alan M. Garber & Thomas E. MaCurdy, 1994. "Forecasting Nursing Home Utilization of Elderly Americans," NBER Chapters, in: Studies in the Economics of Aging, pages 365-394 National Bureau of Economic Research, Inc. [Downloadable!]
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