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The Asset Cost of Poor Health

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  • Poterba, James M.

    (NBER)

  • Venti, Steven F.

    (Dartmouth College)

  • Wise, David A.

    (Harvard Kennedy School)

Abstract

This paper examines the correlation between poor health and asset accumulation for households in the first nine waves of the Health and Retirement Survey. Rather than enumerating the specific costs of poor health, such as out of pocket medical expenses or lost earnings, we estimate how the evolution of household assets is related to poor health. We construct a simple measure of health status based on the first principal component of HRS survey responses on self-reported health status, diagnoses, ADLs, IADL, and other indicators of underlying health. Our estimates suggest large and substantively important correlations between poor health and asset accumulation. We compare persons in each 1992 asset quintile who were in the top third of the 1992 distribution of latent health with those in the same 1992 asset quintile who were in the bottom third of the latent health distribution. By 2008, those in the top third of the health distribution had accumulated, on average, more than 50 percent more assets than those in the bottom third of the health distribution. This "asset cost of poor health" appears to be larger for persons with substantial 1992 asset balances than for those with lower balances.

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Bibliographic Info

Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp11-005.

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Date of creation: Jan 2011
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Handle: RePEc:ecl:harjfk:rwp11-005

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  1. Courtney Coile & Kevin Milligan, 2009. "How Household Portfolios Evolve After Retirement: The Effect Of Aging And Health Shocks," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 226-248, 06.
  2. Samuel Marshall & Kathleen M. McGarry & Jonathan S. Skinner, 2010. "The Risk of Out-of-Pocket Health Care Expenditure at End of Life," NBER Working Papers 16170, National Bureau of Economic Research, Inc.
  3. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "Family Status Transitions, Latent Health, and the Post-Retirement Evolution of Assets," NBER Chapters, in: Explorations in the Economics of Aging, pages 23-69 National Bureau of Economic Research, Inc.
  4. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the Elderly Save? The Role of Medical Expenses," NBER Working Papers 15149, National Bureau of Economic Research, Inc.
  5. 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.
  6. Michael D. Hurd & Susann Rohwedder, 2009. "The Level and Risk of Out-of-Pocket Health Care Spending," Working Papers wp218, University of Michigan, Michigan Retirement Research Center.
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Cited by:
  1. Alain Jousten & Mathieu Lefebvre & Sergio Perelman, 2014. "Health Status, Disability and Retirement Incentives in Belgium," NBER Working Papers 20035, National Bureau of Economic Research, Inc.
  2. James M. Poterba & Steven F. Venti & David A. Wise, 2012. "Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts," NBER Working Papers 17824, National Bureau of Economic Research, Inc.
  3. Luc Behaghel & Didier Blanchet & Muriel Roger, 2014. "Retirement, Early Retirement and Disability: Explaining Labor Force Participation after 55 in France," NBER Working Papers 20030, National Bureau of Economic Research, Inc.
  4. Hendrik Juerges & Lars Thiel & Tabea Bucher-Koenen & Johannes Rausch & Morten Schuth & Axel Boersch-Supan, 2014. "Health, Financial Incentives, and Early Retirement: Micro-Simulation Evidence for Germany," NBER Working Papers 19889, National Bureau of Economic Research, Inc.
  5. James M. Poterba & Steven F. Venti & David A. Wise, 2012. "The Nexus of Social Security Benefits, Health, and Wealth at Death," NBER Working Papers 18658, National Bureau of Economic Research, Inc.
  6. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Drawdown of Personal Retirement Assets," NBER Working Papers 16675, National Bureau of Economic Research, Inc.
  7. James Poterba & Steven Venti & David A. Wise, 2013. "Health, Education, and the Postretirement Evolution of Household Assets," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 297 - 339.
  8. James Poterba & Steven Venti & David Wise, 2011. "The Composition and Drawdown of Wealth in Retirement," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 95-118, Fall.
  9. Maria Prados, 2012. "A Life Cycle Approach to the Mechanism Connecting Health Inequality and Earnings Inequality," 2012 Meeting Papers 1145, Society for Economic Dynamics.

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