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Life Cycle Responses to Health Insurance Status

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  • 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.

Suggested Citation

  • Florian PELGRIN & Pascal ST-AMOUR, 2014. "Life Cycle Responses to Health Insurance Status," Swiss Finance Institute Research Paper Series 14-31, Swiss Finance Institute, revised Jun 2015.
    • Handle: RePEc:chf:rpseri:rp1431
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    Cited by:

    1. Eric French & John Bailey Jones, 2017. "Health, Health Insurance, and Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 383-409, September.
    2. Ólafsdóttir, Thorhildur & Ásgeirsdóttir, Tinna Laufey & Norton, Edward C., 2020. "Valuing pain using the subjective well-being method," Economics & Human Biology, Elsevier, vol. 37(C).
    3. Richard Blundell & Jack Britton & Monica Costa Dias & Eric French, 2017. "The impact of health on labour supply near retirement," IFS Working Papers W17/18, Institute for Fiscal Studies.
    4. Bolin, Kristian & Caputo, Michael R., 2020. "Consumption and investment demand when health evolves stochastically," Journal of Economic Dynamics and Control, Elsevier, vol. 114(C).
    5. Raquel Fonseca & Pierre-Carl Michaud & Arie Kapteyn & Titus Galama, 2013. "Accounting for the Rise of Health Spending and Longevity," Cahiers de recherche 1326, CIRPEE.
    6. Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2017. "Closing Down the Shop: Optimal Health and Wealth Dynamics Near the End of Life," Swiss Finance Institute Research Paper Series 17-11, Swiss Finance Institute, revised May 2018.
    7. Blundell, R. & French, E. & Tetlow, G., 2016. "Retirement Incentives and Labor Supply," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 457-566, Elsevier.
    8. Julien Hugonnier & Florian Pelgrin & Pascal St‐Amour, 2020. "Closing down the shop: Optimal health and wealth dynamics near the end of life," Health Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 138-153, February.
    9. 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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    More about this item

    Keywords

    Household Finance; Endogenous Morbidity and Mortality Risks; Demand for Health; Medicare and Patient Protection and Affordable Care Act; Simulated Moments Estimation;
    All these keywords.

    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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