The Lifetime Medical Spending of Retirees

33 Pages Posted: 10 Dec 2018 Last revised: 29 Apr 2020

See all articles by John Bailey Jones

John Bailey Jones

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

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)

Rory McGee

University College London - Drayton House

Justin Kirschner

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2018

Abstract

Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired US households face over the remainder of their lives. We find that households who turned 70 in 1992 will, on average, incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000 and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk.

Keywords: medical spending, retirees, Medicaid

Suggested Citation

Jones, John B. and De Nardi, Mariacristina and French, Eric and McGee, Rory and Kirschner, Justin, The Lifetime Medical Spending of Retirees (2018). Economic Quarterly, Issue 3Q, pp. 103-135, 2018, Available at SSRN: https://ssrn.com/abstract=3298010

John B. Jones (Contact Author)

Federal Reserve Bank of Richmond ( email )

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Mariacristina De Nardi

University College London, Economics Dpt. ( email )

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Eric French

Department of Economics ( email )

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Institute for Fiscal Studies (IFS) ( email )

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London, WC1E 7AE
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Rory McGee

University College London - Drayton House ( email )

30 Gordon Street
London, WC1H 0QB
United Kingdom

Justin Kirschner

Federal Reserve Banks - Federal Reserve Bank of Richmond

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