IDEAS home Printed from https://ideas.repec.org/p/uwo/uwowop/20131.html
   My bibliography  Save this paper

Health Insurance, Annuities, and Public Policy

Author

Abstract

This paper studies the effects of health shocks on the demand for health insurance and annuities, precautionary saving, and the welfare implications of public policies in a simple life-cycle model. I show that when the health shock simultaneously increases health expenses and reduces longevity, the following results can be obtained via closed-form solutions. First, utility-maximizing agents would neither fully insure their uncertain health expenses nor fully annuitize their wealth, even in the absence of market frictions and bequest motives. Second, the effect of uncertain health expenses on precautionary saving may be smaller than what has been found in previous studies. Under certain conditions, uncertain health expenses may even reduce precautionary saving. Third, mandatory health insurance (e.g. public health insurance) tends to benefit the poor more, while mandatory annuitization (e.g. public pension) is more likely to favor the rich. A simple numerical application of the model to the US long term care (LTC) insurance market suggests that the simultaneous effect of health shock on health expenses and longevity is a quantitatively important reason why agents (especially the rich) do not purchase more private LTC insurance.

Suggested Citation

  • Kai Zhao, 2013. "Health Insurance, Annuities, and Public Policy," UWO Department of Economics Working Papers 20131, University of Western Ontario, Department of Economics.
  • Handle: RePEc:uwo:uwowop:20131
    as

    Download full text from publisher

    File URL: http://economics.uwo.ca/research/department_working_papers_docs/wp2013/wp2013_1.pdf
    Download Restriction: no

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Health Insurance, Annuities, and Public Policy
      by Christian Zimmermann in NEP-DGE blog on 2013-04-03 00:51:39

    More about this item

    Keywords

    Saving; Annuities; Health Insurance; Social Security; Medicare;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uwo:uwowop:20131. 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: (). General contact details of provider: http://economics.uwo.ca/research/research_papers/department_working_papers.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.