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The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments

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  • Tal Gross
  • Timothy J. Layton
  • Daniel Prinz

Abstract

Insurance is typically viewed as a mechanism for transferring resources from good to bad states. However, insurance may also transfer resources from high-liquidity periods to low-liquidity periods. We test for this type of transfer from health insurance by studying the distribution of Social Security checks among Medicare recipients. When Social Security checks are distributed, prescription fills increase by 6–12 percent among recipients who pay small copayments. We find no such pattern among recipients who face no copayments. The results demonstrate that more complete insurance allows recipients to consume healthcare when they need it rather than only when they have cash.

Suggested Citation

  • Tal Gross & Timothy J. Layton & Daniel Prinz, 2022. "The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments," American Economic Review: Insights, American Economic Association, vol. 4(2), pages 175-190, June.
    • Handle: RePEc:aea:aerins:v:4:y:2022:i:2:p:175-90
    DOI: 10.1257/aeri.20200830
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    Cited by:

    1. Ibuka, Yoko & Hamaaki, Junya, 2025. "Income receipt, economic activities, and health: Evidence from ambulance transport patterns," Journal of Health Economics, Elsevier, vol. 100(C).
    2. Marks, Mindy & Prina, Silvia & Tahaj, Redina, 2024. "Short-term labor supply response to the timing of transfer payments: Evidence from the SNAP program," Labour Economics, Elsevier, vol. 91(C).
    3. Sun, Jessica Ya, 2025. "Is there moral hazard in medical savings accounts? Evidence from Singapore," Journal of Economic Behavior & Organization, Elsevier, vol. 231(C).
    4. Daniel Kaliski, 2023. "Identifying the impact of health insurance on subgroups with changing rates of diagnosis," Health Economics, John Wiley & Sons, Ltd., vol. 32(9), pages 2098-2112, September.
    5. Nianzhai Ma & Weizeng Sun & Zhen Wang, 2022. "Host Identity and Consumption Behavior: Evidence from Rural–Urban Migrants in China," Sustainability, MDPI, vol. 14(19), pages 1-25, September.
    6. Lovenheim, Michael F. & Yun, Jun Hyun, 2025. "The effect of housing wealth on health care spending," Journal of Health Economics, Elsevier, vol. 103(C).
    7. Markus Rieger‐Fels, 2024. "Why do people buy insurance? A modern answer to an old question," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 27(1), pages 89-114, April.
    8. Hernandez Martinez, Victor & Liu, Kaixin, 2025. "The value of unemployment insurance: Liquidity vs. insurance value," Labour Economics, Elsevier, vol. 93(C).
    9. Guettabi, Mouhcine & Witman, Allison, 2023. "Universal cash transfers and prescription utilization: Evidence from the Alaska permanent fund dividend," Journal of Health Economics, Elsevier, vol. 90(C).
    10. Yang, Feng-An & Chang, Hung-Hao, 2023. "Impact of a pension program on healthcare utilization among older farmers: Empirical evidence from health claims data," World Development, Elsevier, vol. 169(C).
    11. Liu, Hong & Ma, Jinqiu & Zhao, Liqiu, 2023. "Public long-term care insurance and consumption of elderly households: Evidence from China," Journal of Health Economics, Elsevier, vol. 90(C).
    12. Aurélien Baillon & Owen O'Donnell & Stella Quimbo & Kim van Wilgenburg, 2022. "Do time preferences explain low health insurance take‐up?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(4), pages 951-983, December.
    13. Liu, Jiacheng & Wang, Yaojing & Yao, Yi, 2024. "Anticipated benefit termination and health care consumption responses: Evidence from a quasi-experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
    14. Cylus, Jonathan & Thomson, Sarah & Tayara, Lynn Al & Cerezo, José Cerezo & Martínez, Marcos Gallardo & García-Ramírez, Jorge Alejandro & Karanikolos, Marina & Gregori, María Serrano & Evetovits, Tamás, 2024. "Assessing the equity and coverage policy sensitivity of financial protection indicators in Europe," Health Policy, Elsevier, vol. 147(C).
    15. Alexander Gelber & Timothy Moore & Zhuan Pei & Alexander Strand, 2023. "Disability Insurance Income Saves Lives," Journal of Political Economy, University of Chicago Press, vol. 131(11), pages 3156-3185.
    16. Thomson, Sarah & Cylus, Jonathan & Al Tayara, Lynn & Martínez, Marcos Gallardo & García-Ramírez, Jorge Alejandro & Gregori, María Serrano & Cerezo-Cerezo, José & Karanikolos, Marina & Evetovits, Tamás, 2024. "Monitoring progress towards universal health coverage in Europe: a descriptive analysis of financial protection in 40 countries," LSE Research Online Documents on Economics 122773, London School of Economics and Political Science, LSE Library.
    17. Timothy K. M. Beatty & Joakim A. Weill, 2024. "Social Security and High-Frequency Labor Supply: Evidence from Uber Drivers," Finance and Economics Discussion Series 2024-079, Board of Governors of the Federal Reserve System (U.S.).
    18. Anderson, David M. & Hoagland, Alex & Zhu, Ed, 2024. "Medical bill shock and imperfect moral hazard," Journal of Public Economics, Elsevier, vol. 236(C).
    19. Hoagland, Alex & Wang, Guan, 2025. "Prescribing power and equitable access to care: Evidence from pharmacists in Ontario, Canada," Journal of Health Economics, Elsevier, vol. 103(C).
    20. Carlos Alberto Belchior & Yara Gomes, 2022. "Liquidity constraints, cash transfers and the demand for health care in the Covid‐19 pandemic," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2369-2380, November.
    21. Amitabh Chandra & Evan Flack & Ziad Obermeyer, 2021. "The Health Costs of Cost-Sharing," NBER Working Papers 28439, National Bureau of Economic Research, Inc.
    22. Jeon, Mimi & Kim, Seonghoon & Koh, Kanghyock, 2025. "Short-term mortality and healthcare utilization consequences of pension income receipt: Evidence from South Korea," Journal of Public Economics, Elsevier, vol. 250(C).

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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