Medical Expenditure Risk and Household Portfolio Choice
As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk on the willingness of elderly Medicare beneficiaries to hold risky assets. We measure exposure to medical expenditure risk by whether an individual is covered by supplemental insurance through Medigap, an employer, or a Medicare HMO. We account for the endogeneity of insurance choice by using county variation in Medigap prices and non-Medicare HMO market penetration. We find that having Medigap or an employer policy increases risky asset holding by 6 percentage points relative to those enrolled in only Medicare Parts A and B. HMO participation increases risky asset holding by 12 percentage points. Given that just 50 percent of our sample holds risky assets, these are economically sizable effects. It also suggests an important link between the availability and pricing of health insurance and the financial behavior of the elderly.
|Date of creation:||Dec 2005|
|Date of revision:|
|Publication status:||published as Dana Goldman & Nicole Maestas, 2013. "Medical Expenditure Risk And Household Portfolio Choice," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(4), pages 527-550, 06.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992.
"Earnings Uncertainty and Precautionary Saving,"
CEPR Discussion Papers
699, C.E.P.R. Discussion Papers.
- Martha Starr-McCluer, 1994.
"Health insurance and precautionary saving,"
Finance and Economics Discussion Series
94-10, Board of Governors of the Federal Reserve System (U.S.).
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
- Bhattacharya, Jayanta & Goldman, Dana & Sood, Neeraj, 2003.
"The link between public and private insurance and HIV-related mortality,"
Journal of Health Economics,
Elsevier, vol. 22(6), pages 1105-1122, November.
- Jay Bhattacharya & Dana Goldman & Neeraj Sood, 2002. "The Link Between Public and Private Insurance and HIV-Related Mortality," NBER Working Papers 9346, National Bureau of Economic Research, Inc.
- Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
- Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-53, May.
- repec:dgr:kubcen:199755 is not listed on IDEAS
- James Smith, 2005.
"Consequences and Predictors of New Health Events,"
in: Analyses in the Economics of Aging, pages 213-240
National Bureau of Economic Research, Inc.
- Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 472-485.
- Mroz, Thomas A., 1999. "Discrete factor approximations in simultaneous equation models: Estimating the impact of a dummy endogenous variable on a continuous outcome," Journal of Econometrics, Elsevier, vol. 92(2), pages 233-274, October.
- Christopher D. Carroll & Andrew A. Samwick, 1993.
"How important is precautionary saving?,"
Working Paper Series / Economic Activity Section
145, Board of Governors of the Federal Reserve System (U.S.).
- David Card & Daniel Sullivan, 1987.
"Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment,"
NBER Working Papers
2173, National Bureau of Economic Research, Inc.
- Card, David & Sullivan, Daniel G, 1988. "Measuring the Effect of Subsidized Training Programs on Movements in and out of Employment," Econometrica, Econometric Society, vol. 56(3), pages 497-530, May.
- Douglas W. Elmendorf & Miles S. Kimball, 1996.
"Taxation of labor income and the demand for risky assets,"
Finance and Economics Discussion Series
96-32, Board of Governors of the Federal Reserve System (U.S.).
- Elmendorf, Douglas W & Kimball, Miles S, 2000. "Taxation of Labor Income and the Demand for Risky Assets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 801-33, August.
- Douglas W. Elmendorf & Miles S. Kimball, 1991. "Taxation of Labor Income and the Demand For Risky Assets," NBER Working Papers 3904, National Bureau of Economic Research, Inc.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2001.
"The Empirical Importance of Precautionary Saving,"
CEPR Discussion Papers
2737, C.E.P.R. Discussion Papers.
- Rosen, H.S.Harvey S. & Wu, Stephen, 2004.
"Portfolio choice and health status,"
Journal of Financial Economics,
Elsevier, vol. 72(3), pages 457-484, June.
- Luigi Guiso & Tullio Jappelli, 2000.
"Household Portfolios in Italy,"
CSEF Working Papers
43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
- Stefan Hochguertel, 2003. "Precautionary motives and portfolio decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 61-77.
- Gritz, R. Mark, 1993. "The impact of training on the frequency and duration of employment," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 21-51.
- Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 395-421, April.
- Levin, Laurence, 1995. "Demand for health insurance and precautionary motives for savings among the elderly," Journal of Public Economics, Elsevier, vol. 57(3), pages 337-367, July.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11818. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.