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

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  • Tatyana Koreshkova

    (Concordia University and CIREQ)

  • Karen A. Kopecky

    (University of Western Ontario)

Abstract

The objectives of this paper are 1) to assess the impact of medical and nursing home expenses on life-cycle savings and wealth inequality in the U.S., and 2) to quantitatively evaluate the effects of alternative old-age social insurance policies in a general equilibrium framework. We consider a life-cycle model where individuals face uninsurable labor earnings risk, out-of-pocket medical and nursing home expense risk and survival risk. Partial insurance is available through three social insurance programs: welfare, Medicaid and a pay-as-you-go social security system. We find that out-of-pocket health expenses amplify precautionary savings against survival risk and that nursing home expenses drive the savings behavior of wealthier individuals. The dominant role played by nursing home expenses is primarily due to differences in the degree of social insurance available for medical versus nursing home expense risk. We find that elimination of private medical and nursing home expenses through public health care would reduce the capital stock by 20 percent. We also find that while the welfare program for workers has little effect on savings behavior in the presence of large out-of-pocket expenses, Medicaid and old-age welfare programs crowd out over 60 percent of life-cycle savings and dramatically increase wealth inequality. Furthermore, we find that social security amplifies the effect of OOP health expenses on wealth accumulation. Overall, we conclude that out-of-pocket health expenses play an important role in wealth accumulation on aggregate and across the permanent income distribution.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 46.

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Date of creation: 2009
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Handle: RePEc:red:sed009:46

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  1. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series 2000-52, Board of Governors of the Federal Reserve System (U.S.).
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Saving for the nursing home and aggregate capital
    by Economic Logician in Economic Logic on 2009-08-25 14:41:00
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Cited by:
  1. Makoto Nakajima & Irina A. Telyukova, 2011. "Home equity withdrawal in retirement," Working Papers 11-15, Federal Reserve Bank of Philadelphia.
  2. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices 11-70, Review of Economic Dynamics.
  3. Hui He & Hao Zhang & Tim Halliday, 2010. "Health Investment over the Life-Cycle," 2010 Meeting Papers 1179, Society for Economic Dynamics.
  4. Svetlana Pashchenko, 2010. "Accounting for non-annuitization," 2010 Meeting Papers 563, Society for Economic Dynamics.
  5. Ponpoje (Poe) Porapakkarm & Svetlana Pashchenko, 2013. "Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform," 2013 Meeting Papers 1086, Society for Economic Dynamics.
  6. Mariacristina De Nardi & Eric French & John Bailey Jones, 2012. "Medicaid Insurance in Old Age," Working Papers wp278, University of Michigan, Michigan Retirement Research Center.
  7. Shantanu Bagchi & James Feigenbaum, 2014. "Is Smoking a Fiscal Good?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 170-190, January.
  8. Mariacristina De Nardi & Eric French & John Bailey Jones, 2010. "The Effects of Medicaid and Medicare Reforms on the Elderly’s Savings and Medical Expenditures," Working Papers wp236, University of Michigan, Michigan Retirement Research Center.
  9. Braun, R. Anton & Kopecky, Karen A. & Koreshkova, Tatyana, 2013. "Old, sick, alone, and poor: a welfare analysis of old-age social insurance programs," Working Paper 2013-02, Federal Reserve Bank of Atlanta.
  10. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  11. Irina A. Telyukova & Makoto Nakajima, 2011. "Home Equity in Retirement," NFI Working Papers 2011-WP-08B, Indiana State University, Scott College of Business, Networks Financial Institute, revised Aug 2011.
  12. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2010. "Quantitative Analysis of Health Insurance Reform: Separating Community Rating from Income Redistribution," MPRA Paper 26158, University Library of Munich, Germany.
  13. John Karl Scholz & Ananth Seshadri, 2010. "Health and Wealth in a Life Cycle Model," Working Papers wp224, University of Michigan, Michigan Retirement Research Center.

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