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Life Cycle Responses to Health Insurance Status

Author Info

Listed author(s):
  • Florian PELGRIN

    (EDHEC Business School)

  • Pascal ST-AMOUR

    (University of Lausanne and Swiss Finance Institute)

Abstract

Health insurance status can change over the life cycle for exogenous reasons (e.g. Medicare for the elders, PPACA for younger agents, termination of coverage at retirement in employer-provided plans). Durability of the health capital, endogenous mortality and morbidity, as well as backward induction suggests that these changes should affect the dynamic life cycle beyond the period at which they occur. The purpose of this paper is to study these lifetime effects on the optimal allocation (consumption, leisure, health expenditures), status (health, wealth and survival rates), and welfare. We analyse the impact of young (resp. old) insurance status conditional on old (resp. young) coverage through the structural estimation of a dynamic model with endogenous death and sickness risks. Our results show that young insurees are healthier, wealthier, consume more health care yet are less exposed to OOP risks, and substitute less (more) leisure before (after) retirement. Old insurees show similar patterns, except for lower precautionary wealth balances. Compulsory health insurance is unambiguously optimal for elders, and for young agents, except early in the life cycle. We draw other implications for public policy such as Medicare and PPACA.

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Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 14-31.

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Length: 60 pages
Date of creation:
Handle: RePEc:chf:rpseri:rp1431
Contact details of provider: Web page: http://www.SwissFinanceInstitute.ch

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Keywords: Household Finance; Endogenous Morbidity and Mortality Risks; Demand for Health; Medicare and Patient Protection and Affordable Care Act; Simulated Moments Estimation;

Other versions of this item:

Find related papers by JEL classification:
  • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
  • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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Cited by:

  1. French, Eric & Jones, John Bailey, 2017. "Health, Health Insurance, and Retirement: A Survey," Working Paper 17-3, Federal Reserve Bank of Richmond.
  2. Hugonnier, J. & Pelgrin, F. & St-Amour, P., 2016. "Closing Down the Shop: Optimal Health and Wealth Dynamics near the End of Life," Health, Econometrics and Data Group (HEDG) Working Papers 16/28, HEDG, c/o Department of Economics, University of York.

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