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Life cycle responses to health insurance status

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  • Pelgrin, F.
  • St-Amour, P.

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 theyoccur. 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 resultsshow 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 implicationsfor public policy such as Medicare and PPACA.

Suggested Citation

  • Pelgrin, F. & St-Amour, P., 2014. "Life cycle responses to health insurance status," Health, Econometrics and Data Group (HEDG) Working Papers 14/13, HEDG, c/o Department of Economics, University of York.
  • Handle: RePEc:yor:hectdg:14/13
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    5. 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.
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    More about this item

    Keywords

    household finance; endogenous morbidity and mortality risks; demand for health; medicare and patient protection and a ordable 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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