Life Cycle Responses to Health Insurance Status

60 Pages Posted: 10 May 2014 Last revised: 9 Jun 2015

See all articles by Florian Pelgrin

Florian Pelgrin

EDHEC Business School; EDHEC Business School

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2015

Abstract

Health insurance status can change over the life cycle for exogenous reasons (e.g. Medicare for the elders, PPACA for younger agents, termination of coverage at retirement in employer-provided plans). Durability of the health capital, endogenous mortality and morbidity, as well as backward induction suggests that these changes should affect the dynamic life cycle beyond the period at which they occur. The purpose of this paper is to study these lifetime effects on the optimal allocation (consumption, leisure, health expenditures), status (health, wealth and survival rates), and welfare. We analyse the impact of young (resp. old) insurance status conditional on old (resp. young) coverage through the structural estimation of a dynamic model with endogenous death and sickness risks. Our results show that young insurees are healthier, wealthier, consume more health care yet are less exposed to OOP risks, and substitute less (more) leisure before (after) retirement. Old insurees show similar patterns, except for lower precautionary wealth balances. Compulsory health insurance is unambiguously optimal for elders, and for young agents, except early in the life cycle. We draw other implications for public policy such as Medicare and PPACA.

Keywords: Household Finance, Endogenous Morbidity and Mortality Risks, Demand for Health, Medicare and Patient Protection and Affordable Care Act, Simulated Moments Estimation

JEL Classification: D91, G11, I13

Suggested Citation

Pelgrin, Florian and St-Amour, Pascal, Life Cycle Responses to Health Insurance Status (June 8, 2015). Swiss Finance Institute Research Paper No. 14-31. Available at SSRN: https://ssrn.com/abstract=2434668 or http://dx.doi.org/10.2139/ssrn.2434668

Florian Pelgrin (Contact Author)

EDHEC Business School ( email )

France
Switzerland

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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