On the Distribution and Dynamics of Health Costs

FRB Chicago Working Paper No. 2002-21

46 Pages Posted: 26 Feb 2003

See all articles by Eric French

Eric French

Department of Economics; Institute for Fiscal Studies (IFS)

John Bailey Jones

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

Date Written: May 28, 2002

Abstract

Using data from the Health and Retirement Survey (HRS) and Assets and Health Dynamics of the Oldest Old (AHEAD), this paper presents estimates of the stochastic process that determines both the distribution and dynamics of health costs. We nd that the data generating process for health costs is well represented by an ARMA(1,1). Furthermore, innovations to this process are close to lognormally distributed. In any given year, .1% of our sample receives a health cost shock that costs at least $80,000 in present value. Lastly, we discuss the accuracy of numerical solutions when integrating over health costs. Assuming lognormality, simple approximation rules work well.

Suggested Citation

French, Eric and Jones, John B., On the Distribution and Dynamics of Health Costs (May 28, 2002). FRB Chicago Working Paper No. 2002-21, Available at SSRN: https://ssrn.com/abstract=367174 or http://dx.doi.org/10.2139/ssrn.367174

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John B. Jones

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