Why Do the Elderly Save? The Role of Medical Expenses

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their * An older and less complete version of this paper was previously circulated under the title "Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles". We thank for helpful comments and suggestions Terms of use: Documents in EconStor may

Life-cycle effects of health risk

“…This paper contributes to the rapidly expanding life-cycle model literature incorporating health risk (e.g., Palumbo, 1999;French, 2005;Hall and Jones, 2007;De Nardi et al, 2010;Attanasio et al, 2010;French and Jones, 2011;Jung and Tran, 2011;Pashchenko and Porapakkarm, 2013;Kopecky and Koreshkova, 2014). One of the key motivations in the existing literature has been understanding how saving and retirement behaviors relate to old age medical expenditure and longevity risks.…”

Reexamining the red herring effect on healthcare expenditures

“…Unlike OLS, QR models allow for a full characterization of the conditional distribution of the dependent variable. Thanks to De Nardi et al (2010) findings, this study adopts QR analysis to reexamine the heterogeneous effect of HCEs determinants in Taiwan. Koenker and Bassett (1978) introduce QR, seeking to complement classical linear regression analysis by estimating all parts of the response distribution conditional on the predictor variable.…”

“…Brown and Finkelstein (2008) also evidence the uneven distribution of long-term care amongst individuals. Moreover, De Nardi, French, and Jones (2010) show that both level and volatility of HCEs increase sharply with age. HCEs tend to fluctuate strongly in the course of patients' lives and vary significantly among individuals.…”

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