BY DONNA B. GILLESKIE1 This research explores the medical care consumption and absenteeism decisions of employed individuals with acute illnesses in an effort to better understand behavior that may contribute to the upward spiraling costs of health care. The theoretical framework models the decisions to visit a doctor and/or to miss work during an episode of acute illness as the sequential choices of individuals solving a discrete choice stochastic dynamic programming problem. Using data from the 1987 National Medical Expenditure Survey (NMES), I estimate the structural parameters of an individual's optimization problem. Structural estimation, as opposed to conventional reduced form estimation methods that are prevalent in the health care literature, allows for the introduction and evaluation of the impact of new public policy initiatives relating to health care. The estimates allow for predictions of the change in physician services use and illness-related absenteeism that arise with improvements in access to health care through more complete health insurance and sick leave coverage.

SUMMARYMost health insurance in the USA is provided by employers until eligibility for public health insurance (Medicare) begins at age 65. Retiring before 65 exposes workers who lack retiree health insurance coverage to the risk of catastrophic medical expenditure. We solve and estimate a dynamic model of the employment behavior of older married couples that includes risky medical expenditure and health insurance. Parameter estimates imply that the risk-reducing feature of health insurance can account for about half of the observed association between retiree health insurance and employment for married men, but can account for only one tenth of the much larger observed association for married women. Policy simulations imply very small effects on employment of changing the age of eligibility for Medicare from 65 to 67.

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We model the employment and medical care decisions of older men who face health risk. The budget constraint incorporates detailed characteristics of health insurance as well as Social Security and private pensions. A man whose health insurance is tied to continued employment with his current employer faces the risk of large medical expenditures in the event of an adverse health shock if he retires before becoming eligible for Medicare at age 65. A man whose employer provides retiree health insurance or who has access to other health insurance not tied to his employment decision (e.g., from his wife) can retire before age 65 without consequences for his health insurance coverage. We use data from the Health and Retirement Survey to estimate the parameters of the model using structural methods. Simulations based on the estimates imply that changes in health insurance, including access and restrictions to retiree health insurance and Medicare have a modest impact on employment behavior among older males.

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