Medical Expenditure Risk and Household Portfolio Choice

49 Pages Posted: 15 Aug 2007

See all articles by Dana P. Goldman

Dana P. Goldman

RAND Corporation; National Bureau of Economic Research (NBER)

Nicole Maestas

Harvard Medical School - Department of Health Care Policy

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007

Abstract

As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk on the willingness of elderly Medicare beneficiaries to hold risky assets. The authors measure exposure to medical expenditure risk by whether an individual is covered by supplemental insurance through Medigap, an employer, or a Medicare HMO. They account for the endogeneity of insurance choice by using county variation in Medigap prices and non-Medicare HMO market penetration. They find that having Medigap or an employer policy increases risky asset holding by 6 percentage points relative to those enrolled in only Medicare Parts A and B. HMO participation increases risky asset holding by 12 percentage points. Their results point to an important link between the availability and pricing of health insurance and the financial behavior of the elderly.

Keywords: cost of medical care, managed care plans, health insurance

JEL Classification: I0

Suggested Citation

Goldman, Dana P. and Maestas, Nicole, Medical Expenditure Risk and Household Portfolio Choice (February 2007). RAND Working Paper No. WR-325-1. Available at SSRN: https://ssrn.com/abstract=1006115 or http://dx.doi.org/10.2139/ssrn.1006115

Dana P. Goldman (Contact Author)

RAND Corporation ( email )

P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nicole Maestas

Harvard Medical School - Department of Health Care Policy ( email )

180 Longwood Avenue
Boston, MA 02115
United States

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