Work

Old Age Risks, Consumption, and Insurance

Year: 2024

Type: article

Abstract: In the United States, after age 65, households face income and health risks, and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most US elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks. (JEL D12, E21, G22, G51, I10, J14, J26)

Source: American Economic Review

DOI: 10.1257/aer.20220555

Authors: Richard Blundell, Margherita Borella, Jeanne Commault, Mariacristina De Nardi