Medical Expenditure Risk and Household Portfolio Choice
49 Pages Posted: 15 Aug 2007
There are 2 versions of this paper
Medical Expenditure Risk and Household Portfolio Choice
Medical Expenditure Risk and Household Portfolio Choice
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: Suggested Citation
Register to save articles to
your library
Paper statistics
Recommended Papers
-
A Theory of the Consumption Function, with and Without Liquidity Constraints (Expanded Version)
-
Disentangling the Importance of the Precautionary Saving Motive
-
Disentangling the Importance of the Precautionary Saving Mode
-
Unemployment Insurance and Precautionary Saving
By Eric M. Engen and Jonathan Gruber
-
Precautionary Savings and Self-Selection - Evidence from the German Reunification 'Experiment'
-
Asking Consumption Questions in General Purpose Surveys
By Martin Browning, Thomas F. Crossley, ...
