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The Lifetime Medical Spending of Retirees

Author

Listed:
  • Jones, John Bailey

    (Federal Reserve Bank of Richmond)

  • De Nardi, Mariacristina

    (Federal Reserve Bank of Chicago, UCL, CEPR and NBER)

  • French, Eric

    (UCL, CEPR, and IFS)

  • McGee, Rory

    (UCL and IFS)

  • Kirschner, Justin

    (Federal Reserve Bank of Richmond)

Abstract

Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired US households face over the remainder of their lives. We find that households who turned 70 in 1992 will, on average, incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000 and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk.

Suggested Citation

  • Jones, John Bailey & De Nardi, Mariacristina & French, Eric & McGee, Rory & Kirschner, Justin, 2018. "The Lifetime Medical Spending of Retirees," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 103-135.
  • Handle: RePEc:fip:fedreq:00060
    as

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    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_quarterly/2018/q3/jones.pdf
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    References listed on IDEAS

    as
    1. Silvia Helena Barcellos & Mireille Jacobson, 2015. "The Effects of Medicare on Medical Expenditure Risk and Financial Strain," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 41-70, November.
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    Cited by:

    1. Wouterse, B.; & Hussem, A.; & Wong, A.;, 2018. "The effect of co-payments in Long Term Care on the distribution of payments,consumption, and risk," Health, Econometrics and Data Group (HEDG) Working Papers 18/24, HEDG, c/o Department of Economics, University of York.

    More about this item

    Keywords

    medical spending; retirees; Medicaid;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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