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The Evolution of Medical Spending Risk

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  • Jonathan Gruber
  • Helen Levy

Abstract

How has the economic risk of health spending changed over time for U.S. households? We describe trends in aggregate health spending in the United States and how private insurance markets and public insurance programs have changed over time. We then present evidence from Consumer Expenditure Survey microdata on how the distribution of household spending on health -- that is, out-of-pocket payments for medical care plus the household's share of health insurance premiums -- has changed over time. This distribution has shifted up over time -- households spend more on medical care and insurance than they used to -- but for the purposes of measuring change in risk, it is not the mean but the dispersion of this distribution that is of interest. We consider two measures of dispersion that serve as proxies for household risk: the standard deviation of the distribution of household health spending and the ratio of the 90th percentile of spending to the median (the so-called "90/50 gap"). We find, surprisingly, that neither has increased despite the rapid rise in aggregate health spending. This conclusion holds true for broad subgroups of the population (for example, the nonelderly as a group) but not for some narrowly-defined subgroups (for example, low-income families with children). We next consider how much risk households should face, from the perspective of economic efficiency. Household risk may not have changed much over the past several decades, but do we have any evidence that this level represents either too much or too little risk? Finally, we discuss implications for public policy -- in particular, for current debates over expanding health insurance coverage to the uninsured.

Suggested Citation

  • Jonathan Gruber & Helen Levy, 2009. "The Evolution of Medical Spending Risk," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 25-48, Fall.
  • Handle: RePEc:aea:jecper:v:23:y:2009:i:4:p:25-48
    Note: DOI: 10.1257/jep.23.4.25
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.4.25
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Problem is Systematic Risk of Healthcare Spending, Not Household Risk
      by Adam Ozimek in Modeled Behavior on 2009-12-10 18:12:30

    Citations

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    Cited by:

    1. Flores, Gabriela & O’Donnell, Owen, 2016. "Catastrophic medical expenditure risk," Journal of Health Economics, Elsevier, vol. 46(C), pages 1-15.
    2. Gross, Tal & Notowidigdo, Matthew J., 2011. "Health insurance and the consumer bankruptcy decision: Evidence from expansions of Medicaid," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 767-778, August.
    3. Patrick Richard, 2016. "The Burden of Medical Debt Faced by Households with Dependent Children in the United States: Implications for the Affordable Care Act of 2010," Journal of Family and Economic Issues, Springer, vol. 37(2), pages 212-225, June.
    4. Thomas G. Koch, 2017. "The Shifting Shape of Risk: Endogenous Market Failure for Insurance," Risks, MDPI, Open Access Journal, vol. 5(1), pages 1-13, January.
    5. Silvia H. 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.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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