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Health Shocks, Health Insurance, Human Capital, and the Dynamics of Earnings and Health

Author

Listed:
  • Elena Capatina
  • Michael Keane

Abstract

We develop a life-cycle model of labor supply and human capital formation that incorporates health shocks, health insurance, and medical treatment decisions. We use the model to study effects of health shocks on health, labor supply, earnings, and earnings inequality. We also simulate provision of public insurance to agents who lack employer-sponsored insurance. While this increases medical spending substantially, it creates positive labor supply incentives for low-skill workers while reducing costs of social insurance, Medicaid, and free care. The net program cost is modest, and all model agents are ex ante better off in a balanced budget simulation.

Suggested Citation

  • Elena Capatina & Michael Keane, 2026. "Health Shocks, Health Insurance, Human Capital, and the Dynamics of Earnings and Health," Journal of Political Economy, University of Chicago Press, vol. 134(6), pages 1714-1774.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/739831
    DOI: 10.1086/739831
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    Cited by:

    1. is not listed on IDEAS
    2. Longden, Thomas & Naghsh Nejad, Maryam, 2025. "Early Withdrawal of Retirement Savings After a Severe Health Shock: Evidence from Linked Administrative Data," IZA Discussion Papers 17964, IZA Network @ LISER.
    3. repec:acb:cbeeco:2023-695 is not listed on IDEAS
    4. Burmaa Galaa & Enkhamgalan Byambajav & Kai-yin Woo & Amarbayasgalan Myagmar-Ochir & Saruultuya Tsendsuren, 2024. "Long-run relationship between insurance premiums and driving factors in Mongolia," Advances in Decision Sciences, Asia University, Taiwan, vol. 28(2), pages 116-136, June.
    5. Elena Capatina & Hyunjae Kang, 2024. "Demand for Spousal Health," ANU Working Papers in Economics and Econometrics 2024-695, Australian National University, College of Business and Economics, School of Economics.
    6. Margherita Borella & Francisco Bullano & Mariacristina De Nardi & Benjamin Krueger & Elena Manresa, 2025. "Health inequality and health types," The Econometrics Journal, Royal Economic Society, vol. 28(3), pages 341-384.
    7. Pashchenko, Svetlana, 2025. "Comments on “Income differences and health disparities: Roles of preventive vs. curative medicine” by Serdar Ozkan," Journal of Monetary Economics, Elsevier, vol. 150(C).

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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