Medicaid Insurance in Old Age

44 Pages Posted: 22 Dec 2012

See all articles by Mariacristina De Nardi

Mariacristina De Nardi

University College London, Economics Dpt.; Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER) - Public Economics

Eric French

Department of Economics; Institute for Fiscal Studies (IFS)

John Bailey Jones

Federal Reserve Bank of Richmond; SUNY at Albany - School of Business

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Date Written: December 1, 2012

Abstract

Medicaid was primarily designed to protect and insure the poor. However, the poor tend to live much shorter lifespans and thus incur much lower medical expenses before death. In this paper we assess the insurance and redistributive properties of Medicaid, taking these dimensions of heterogeneity into account, for single retirees.

The Medicaid recipiency rate for those at the bottom income quintile stays around 60%-70% throughout their retirement. In contrast, Medicaid recipiency by higher-income retirees is much lower but increases by age, especially after age 90.

Our preliminary results show that the annuity value of Medicaid payments is a hump-shaped function of permanent income. People in the middle of the income distribution receive more than those at the top or the bottom. Once one takes into account that the rich live longer, Medicaid is even less redistributive: in terms of present discounted value, the richest people receive almost as much the poorest ones, and the middle income people still benefit the most.

Accounting for risk makes Medicaid less redistributive further still. Compensating differential calculations show that Medicaid insurance is valued most highly by the most rich, who have the most to lose.

Keywords: Medicaid, long-term care, nursing home stays, consumption, medical expenditures

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Medicaid Insurance in Old Age (December 1, 2012). Michigan Retirement Research Center Research Paper No. 2012-278, Available at SSRN: https://ssrn.com/abstract=2192557 or http://dx.doi.org/10.2139/ssrn.2192557

Mariacristina De Nardi (Contact Author)

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Eric French

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