Health Insurance, Portfolio Choice, and Retirement Incentives

28 Pages Posted: 12 Oct 2021 Last revised: 29 Sep 2022

See all articles by Emilio Barucci

Emilio Barucci

Politecnico di Milano - Department of Mathematics

Enrico Biffis

Imperial College Business School

Daniele Marazzina

Polytechnic University of Milan - Department of Mathematics

Date Written: September 14, 2022

Abstract

We study optimal portfolio choice and labor market participation in a continuous time setting in which agents face health shocks, medical expenses, and random lifetimes. We explore the implications of different forms of health coverage and study their impact on dynamic portfolios and labor supply decisions. We characterize these effects in semi-closed form, providing tools to measure retirement incentives as a function of relevant state variables and health cover arrangements. A calibration of the model matches empirically observed labor market participation patterns and portfolio decisions of US workers during the last phase of their working lives, while offering insights into the interlinkage between labor market participation, health insurance provision and portfolio choice.

Keywords: health insurance, health shock, retirement, labor income, optimal asset allocation

JEL Classification: D91, D92, G11, G12, C61

Suggested Citation

Barucci, Emilio and Biffis, Enrico and Marazzina, Daniele, Health Insurance, Portfolio Choice, and Retirement Incentives (September 14, 2022). Available at SSRN: https://ssrn.com/abstract=3941276 or http://dx.doi.org/10.2139/ssrn.3941276

Emilio Barucci

Politecnico di Milano - Department of Mathematics ( email )

Piazza Leonardo da Vinci
Milan, Milano 20100
Italy

Enrico Biffis (Contact Author)

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

Daniele Marazzina

Polytechnic University of Milan - Department of Mathematics ( email )

Via Bonardi, 9
Milano, MI 20133
Italy

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