Medicaid Insurance in Old Age

78 Pages Posted: 21 Jun 2013

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

Multiple version iconThere are 4 versions of this paper

Date Written: June 2013

Abstract

The old age provisions of the Medicaid program were designed to insure poor retirees against medical expenses. However, it is the rich who are most likely to live long and face expensive medical conditions when very old. We estimate a structural model of savings and endogenous medical spending with heterogeneous agents and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees. We find that retirees with high lifetime incomes can end up on Medicaid and often value Medicaid insurance the most, as they face a larger risk of catastrophic medical needs at old ages and face the greatest consumption risk. Compensating variation calculations indicate that current retirees value Medicaid insurance at more than its actuarial cost, but that most would value an expansion of the current Medicaid program at less than its cost. These findings suggest that for current single retirees, the Medicaid program may be of the approximately right size.

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Medicaid Insurance in Old Age (June 2013). NBER Working Paper No. w19151, Available at SSRN: https://ssrn.com/abstract=2282991

Mariacristina De Nardi (Contact Author)

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Eric French

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