Heterogeneous Health Groups and the Dynamics of the Elderly
40 Pages Posted: 19 Aug 2019
Date Written: May 16, 2019
Abstract
We propose a novel methodology to classify individuals into groups of health and characterize their transition across these groups as they age. We use MCMC techniques to estimate a panel Markov switching model that exploits information from both the cross- sectional and time series dimensions. Using the Health and Retirement Study, we identify four clearly differentiated and persistent health groups, depending on individual’s physical and mental disabilities, with heterogeneous transitions across gender and education. Our classification outperforms existing measures of health used in the literature at explaining entry in nursing homes, home health care, out-of-pocket medical expenses, and mortality.
Keywords: Latent groups, Frailty, Long-Term Care, Medical expenses
JEL Classification: C23, C38, E21, I14
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