To love or to pay: Savings and health care in older age

No 2012-51, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper develops a dynamic structural life-cycle model to study how heterogeneous health and medical spending shocks a¤ect the savings behavior of the elderly. Individuals are allowed to respond to health shocks in two ways: they can directly pay for their health care expenses (self-insure) or they can rely on health insurance contracts. There are two possible insurance options, one through formal contracts and another through informal care provided by family. Formal contracts may be a¤ected by asymmetric information problems, whereas informal insurance depends on social ties (cohesion) and on bequeathable wealth. I estimate the model on SHARE data using simulated method of moments for four levels of wealth in a sample of single retired Europeans. Counterfactual experiments show that health, medical spending and health insurance are indeed the main drivers of the slow wealth decumulation in old age. I also fi?nd that social cohesion rises with age, declines with wealth and is higher in Mediterranean countries than in Central European and Scandinavian countries. Finally, high social cohesion appears typically associated with increased life expectancy.

Keywords: savings; health; health insurance; social cohesion; life expectancy (search for similar items in EconPapers)
JEL-codes: D1 D31 E27 H31 H51 I1 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-12
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-hea, nep-ias and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: To Love or to Pay: Savings and Health Care in Older Age (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2012-51

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