Income Inequality, Medical Conditions, and Household Bankruptcy

I study disparities in emergency and non-emergency medical conditions between high and low income individuals and their implications on consumption, savings, and bankruptcy. In the Medical Expenditure Panel Survey (MEPS), two patterns emerge. First, low income individuals are more likely to visit emergency rooms than high income individuals, and this gap is disproportionately larger for working age individuals. Second, although the differences between high and low income individuals in non-emergency medical conditions are little in early life, the gap in non-emergency medical conditions is substantial in middle and late life. To explain these facts, I build an overlapping generations general equilibrium model that features (i) endogenous decisions on default and health insurance, (ii) endogenous health that determines labor productivity, (iii) the existence of emergency (non-discretionary) medical expenditures and non-emergency (discretionary) medical expenditures, and (iv) the endogenous distribution of emergency and non-emergency health shocks. I find that low income individuals spend less on their health in early life, leading to their contacting more severe and more frequent health conditions (emergency and non-emergency) following their middle life onwards. This enforces low income individuals to be sicker and to visit emergency rooms more often, while spending more on health cares from their middle life. Moreover, this model shows that this endogenous distribution of health shocks causes low income individuals to have more precautionary savings and less consumption due to their highly volatile earnings from severe health shocks. The poor default more often due to their lower earnings and more frequent emergency (non-discretionary) medical treatments, which arises from their bad health status.