The Risk and Duration of Catastrophic Health Care Expenditures

50 Pages Posted: 16 Jul 2004 Last revised: 2 Nov 2022

See all articles by Daniel R. Feenberg

Daniel R. Feenberg

National Bureau of Economic Research (NBER)

Jonathan S. Skinner

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1992

Abstract

Catastrophic medical expenses are an important economic risk facing the elderly. Little is known about the persistence of such out-of-pocket medical costs. We measure the time-series property of medical costs using information on medical deductions from a panel of tax returns. During the period of analysis, 1968-73, taxpayers could deduct medical expenses above 3 percent of income. We correct for the resulting censoring bias using multivariate Tobit estimated with a variant of the smoothed simulated maximum likelihood (SSML) method. The data suggest that the burden of out-of-pocket medical expenses is substantially larger for lower income families. Furthermore, the estimated coefficients suggest substantial time-persistence in out-of-pocket medical care costs; a $1 increase in out-of-pocket medical spending is predicted to increase future spending by an additional $2.80. These results may shed light both on the social value of catastrophic health insurance as well on aggregate saving behavior.

Suggested Citation

Feenberg, Daniel R. and Skinner, Jonathan S., The Risk and Duration of Catastrophic Health Care Expenditures (August 1992). NBER Working Paper No. w4147, Available at SSRN: https://ssrn.com/abstract=226805

Daniel R. Feenberg (Contact Author)

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Jonathan S. Skinner

Dartmouth College - Department of Economics ( email )

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United States
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National Bureau of Economic Research (NBER) ( email )

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