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Households’ uncertainty about Medicare policy

Author

Listed:
  • Michelangeli Valentina

    (Bank of Italy, Via Nazionale, 91, 00184 Roma, Italy)

  • Santoro Marika

    (International Monetary Fund, 700 19th Street N.W., Washington DC 20431)

Abstract

Interest in the implications of policy uncertainty has been recently growing, as policy uncertainty increases during recession episodes. In this paper, we study how households behave when they are uncertain about future Medicare policies. Medicare represents the main form of insurance against medical expenditure risk for older Americans. However, the challenge raised by the Medicare budget increases households’ awareness of possible future Medicare reforms. Households are uncertain about the types and timing of those reforms. To analyze the effects of that policy uncertainty, we build a life-cycle model where households face several risks. Based on reasonable assumptions about policy uncertainty, we find that, due to that uncertainty, households mainly increase savings, with older households saving up to 3.5% more in the short run. The average welfare loss is about $10,000 in wealth-equivalent, with the largest losses concentrated among older households.

Suggested Citation

  • Michelangeli Valentina & Santoro Marika, 2013. "Households’ uncertainty about Medicare policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 151-186, January.
  • Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:151-186:n:20
    DOI: 10.1515/bejm-2012-0120
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    3. Caliendo, Frank N. & Gorry, Aspen & Slavov, Sita, 2019. "The cost of uncertainty about the timing of Social Security reform," European Economic Review, Elsevier, vol. 118(C), pages 101-125.

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    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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