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Health and the savings of insured versus uninsured, working-age households in the U.S

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  • Maude Toussaint-Comeau
  • Jonathan Hartley

Abstract

This paper examines the effect of a decline in health on the savings and portfolio choice of young, working individuals and the differences between insured and uninsured cohorts using the 2001 Survey of Income and Program Participation. We find that insured individuals are significantly likely to divest from risky asset holdings in response to a decline in health, controlling for variables such as income, age, and out-of-pocket medical expenses. Unlike many previous papers, which dismiss health and portfolio choice associations among retired individuals on the basis of unobserved heterogeneity, we find that our results for working individuals are robust when using fixed effects models in a three-year longitudinal panel. Consistent with an overall theory of risk, we find that the relationship between an onset of poor health and an increased aversion to risky assets among the insured is strongest (only apparent) among married-couple households.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-09-23.

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Date of creation: 2009
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Handle: RePEc:fip:fedhwp:wp-09-23

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  1. Smith, J-P & Kington, R, 1997. "Demographic and Economic Correlates of Health in Old Age," Papers 97-06, RAND - Reprint Series.
  2. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
  3. 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.
  4. Harvey S. Rosen & Stephen Wu, 2003. "Portfolio Choice and Health Status," NBER Working Papers 9453, National Bureau of Economic Research, Inc.
  5. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
  6. Fan, Elliott & Zhao, Ruoyun, 2009. "Health status and portfolio choice: Causality or heterogeneity?," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1079-1088, June.
  7. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  8. Crossley, Thomas F. & Kennedy, Steven, 2002. "The reliability of self-assessed health status," Journal of Health Economics, Elsevier, vol. 21(4), pages 643-658, July.
  9. Greene, W., 2001. "Fixed and Random Effects in Nonlinear Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-01, New York University, Leonard N. Stern School of Business-.
  10. Stephen Wu, 2003. "The Effects of Health Events on the Economic Status of Married Couples," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
  11. Annette Vissing-Jorgensen, 2002. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," NBER Working Papers 8884, National Bureau of Economic Research, Inc.
  12. Lillard, Lee A & Weiss, Yoram, 1997. "Uncertain Health and Survival: Effects on End-of-Life Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(2), pages 254-68, April.
  13. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
  14. King, Mervyn A. & Leape, Jonathan I., 1998. "Wealth and portfolio composition: Theory and evidence," Journal of Public Economics, Elsevier, vol. 69(2), pages 155-193, June.
  15. David Love & Paul A. Smith, 2008. "Does Health Affect Portfolio Choice?," Department of Economics Working Papers 2008-11, Department of Economics, Williams College.
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