Medicaid Insurance in Old Age

54 Pages Posted: 8 May 2014

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: February 3, 2014

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 rich 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’s insurance features the most, as they face a larger risk of catastrophic medical needs at old ages, and face the greatest consumption risk. In addition, our compensating differential calculations indicate that retirees value Medicaid insurance at more than its actuarial cost, but that most would value expansions of the current Medicaid program at less than cost, thus suggesting that the Medicaid program may currently be of the approximately right size.

Suggested Citation

De Nardi, Mariacristina and French, Eric and Jones, John B., Medicaid Insurance in Old Age (February 3, 2014). Netspar Discussion Paper No. 02/2014-014, Available at SSRN: https://ssrn.com/abstract=2433939 or http://dx.doi.org/10.2139/ssrn.2433939

Mariacristina De Nardi (Contact Author)

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