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The Risk of Out-of-Pocket Health Care Expenditure at End of Life


  • Samuel Marshall
  • Kathleen M. McGarry
  • Jonathan S. Skinner


There is conflicting evidence on the importance of out-of-pocket medical expenditures as a risk to financial security, particularly at older ages. We revisit this question, focusing on health care spending near the end of life using data from the Health and Retirement Study for the years 1998-2006. We address difficulties with missing values for various categories of expenditures, outliers, and variations across individuals in the length of the reporting period. Spending in the last year of life is estimated to be $11,618 on average, with the 90th percentile equal to $29,335, the 95th percentile $49,907, and the 99th equal to $94,310. These spending measures represent a substantial fraction of liquid wealth for decedents. Total out-of-pocket expenditures are strongly positively related to wealth and weakly related to income. We find evidence for a mechanism by which wealth could plausibly buy health: large expenditures on home modifications, helpers, home health care, and higher-quality nursing homes, which have been shown elsewhere to improve longevity.

Suggested Citation

  • Samuel Marshall & Kathleen M. McGarry & Jonathan S. Skinner, 2010. "The Risk of Out-of-Pocket Health Care Expenditure at End of Life," NBER Working Papers 16170, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16170
    Note: AG HC

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    References listed on IDEAS

    1. James Smith, 2005. "Consequences and Predictors of New Health Events," NBER Chapters,in: Analyses in the Economics of Aging, pages 213-240 National Bureau of Economic Research, Inc.
    2. Feenberg, Daniel & Skinner, Jonathan, 1994. "The Risk and Duration of Catastrophic Health Care Expenditures," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 633-647, November.
    3. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    4. Michael D. Hurd & Susann Rohwedder, 2009. "The Level and Risk of Out-of-Pocket Health Care Spending," Working Papers wp218, University of Michigan, Michigan Retirement Research Center.
    5. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring.
    6. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
    7. Anthony Webb & Natalia Zhivan, 2010. "How Much Is Enough? The Distribution of Lifetime Health Care Costs," Working Papers, Center for Retirement Research at Boston College wp2010-1, Center for Retirement Research, revised Feb 2010.
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    Cited by:

    1. Poterba, James M. & Venti, Steven F. & Wise, David A., 2017. "The asset cost of poor health," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 172-184.
    2. James Poterba & Steven Venti & David Wise, 2011. "The Composition and Drawdown of Wealth in Retirement," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 95-118, Fall.
    3. Maria Prados, 2012. "A Life Cycle Approach to the Mechanism Connecting Health Inequality and Earnings Inequality," 2012 Meeting Papers 1145, Society for Economic Dynamics.
    4. Wise, David Alsgaard & Poterba, James M. & Venti, Steven F., 2011. "The Drawdown of Personal Retirement Assets," Scholarly Articles 4677548, Harvard Kennedy School of Government.
    5. Wankyo Chung, 2015. "Korea’s Basic Old-Age Pension and its poverty reduction effects," Chapters,in: Social Policies in an Age of Austerity, chapter 10, pages 263-283 Edward Elgar Publishing.
    6. Irina A. Telyukova & Makoto Nakajima, 2011. "Home Equity in Retirement," NFI Working Papers 2011-WP-08B, Indiana State University, Scott College of Business, Networks Financial Institute, revised Aug 2011.
    7. Silvia H. Barcellos & Mireille Jacobson, 2014. "The Effects of Medicare on Medical Expenditure Risk and Financial Strain," NBER Working Papers 19954, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I29 - Health, Education, and Welfare - - Education - - - Other
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General


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