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The Risk of Out-of-Pocket Health Care Expenditure at End of Life

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  • Samuel Marshall
  • Kathleen M. McGarry
  • Jonathan S. Skinner

Abstract

There is conflicting evidence on the importance of out-of-pocket medical expenditures as a risk to financial security, particularly at older ages. We revisit this question, focusing on health care spending near the end of life using data from the Health and Retirement Study for the years 1998-2006. We address difficulties with missing values for various categories of expenditures, outliers, and variations across individuals in the length of the reporting period. Spending in the last year of life is estimated to be $11,618 on average, with the 90th percentile equal to $29,335, the 95th percentile $49,907, and the 99th equal to $94,310. These spending measures represent a substantial fraction of liquid wealth for decedents. Total out-of-pocket expenditures are strongly positively related to wealth and weakly related to income. We find evidence for a mechanism by which wealth could plausibly buy health: large expenditures on home modifications, helpers, home health care, and higher-quality nursing homes, which have been shown elsewhere to improve longevity.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16170.

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Date of creation: Jul 2010
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Handle: RePEc:nbr:nberwo:16170

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References

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  1. 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.
  2. James P. Smith, 2003. "Consequences and Predictors of New Health Events," NBER Working Papers 10063, National Bureau of Economic Research, Inc.
  3. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the elderly save? the role of medical expenses," Working Paper Series WP-09-02, Federal Reserve Bank of Chicago.
  4. 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.
  5. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-47, November.
  6. Anthony Webb & Natalia Zhivan, 2010. "How Much Is Enough? The Distribution of Lifetime Health Care Costs," Working Papers, Center for Retirement Research at Boston College wp2010-1, Center for Retirement Research, revised Feb 2010.
  7. 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.
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Cited by:
  1. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Composition and Draw-down of Wealth in Retirement," NBER Working Papers 17536, National Bureau of Economic Research, Inc.
  2. Maria Prados, 2012. "A Life Cycle Approach to the Mechanism Connecting Health Inequality and Earnings Inequality," 2012 Meeting Papers 1145, Society for Economic Dynamics.
  3. Silvia Helena Barcellos & Mireille Jacobson, 2014. "The Effects of Medicare on Medical Expenditure Risk and Financial Strain," NBER Working Papers 19954, National Bureau of Economic Research, Inc.

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