Health Care, Health Insurance, and the Relative Income of the Elderly and Nonelderly

60 Pages Posted: 23 May 2009

See all articles by Gary Burtless

Gary Burtless

Brookings Institution; Boston College - Retirement Research Center

Pavel Svaton

Brookings Institution

Date Written: February 2009

Abstract

Cash income offers an incomplete picture of the resources available to finance household consumption. Most American families are covered by an insurance plan that pays for some or all of the health care they consume. Only a comparatively small percentage of families pay for the full cost of this insurance out of their cash incomes. As health care has claimed a growing share of consumption, the percentage of care that is financed out of household incomes has declined. Because health care consumption is more important for some groups in the population than others, the growth in spending and changes in the payment system for medical care have reduced the value of standard income measures for assessing relative incomes across age groups and across the income distribution. More than a seventh of total personal consumption now consists of health care that is purchased with government insurance and employer contributions to employee health plans. In this paper we combine health care spending and insurance reimbursement data in the Medical Expenditure Panel Study with cash and noncash income data in the Current Population Survey to assess the impact of health insurance on the distribution of income and, in particular, on the age profile of income. Our estimates imply that gross money income and disposable cash and near-cash income significantly understate the resources available to finance household purchases. The estimates imply that a more complete measure of resources would show less inequality than the income measures that are currently used. The addition of estimates of the value of health insurance to countable incomes reduces measured inequality in the population and the income gap between young and old. Standard income measures imply that households with an aged household head have significantly lower average and median incomes than households with a head who is less than 55. In contrast, an income definition that includes the value of health insurance implies that aged households have higher incomes than households with a nonaged head.

Suggested Citation

Burtless, Gary T and Svaton, Pavel, Health Care, Health Insurance, and the Relative Income of the Elderly and Nonelderly (February 2009). Available at SSRN: https://ssrn.com/abstract=1408725 or http://dx.doi.org/10.2139/ssrn.1408725

Gary T Burtless (Contact Author)

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Economic Studies Program
Washington, DC 20036-2188
United States
202-797-6000 (Phone)
202-797-6181 (Fax)

Boston College - Retirement Research Center ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Pavel Svaton

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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