Life Cycle Responses to Health Insurance Status

Florian Pelgrin and Pascal St-Amour
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Florian Pelgrin: EDHEC Business School

No 14-31, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Health insurance status can change over the life cycle for exogenous reasons (e.g. Medicare for the elders, PPACA for younger agents, termination of coverage at retirement in employer-provided plans). Durability of the health capital, endogenous mortality and morbidity, as well as backward induction suggests that these changes should affect the dynamic life cycle beyond the period at which they occur. The purpose of this paper is to study these lifetime effects on the optimal allocation (consumption, leisure, health expenditures), status (health, wealth and survival rates), and welfare. We analyse the impact of young (resp. old) insurance status conditional on old (resp. young) coverage through the structural estimation of a dynamic model with endogenous death and sickness risks. Our results show that young insurees are healthier, wealthier, consume more health care yet are less exposed to OOP risks, and substitute less (more) leisure before (after) retirement. Old insurees show similar patterns, except for lower precautionary wealth balances. Compulsory health insurance is unambiguously optimal for elders, and for young agents, except early in the life cycle. We draw other implications for public policy such as Medicare and PPACA.

Keywords: Household Finance; Endogenous Morbidity and Mortality Risks; Demand for Health; Medicare and Patient Protection and Affordable Care Act; Simulated Moments Estimation (search for similar items in EconPapers)
JEL-codes: D91 G11 I13 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2014-05, Revised 2015-06
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea and nep-ias
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http://ssrn.com/abstract=2434668 (application/pdf)

Related works:
Journal Article: Life cycle responses to health insurance status (2016)
Working Paper: Life cycle responses to health insurance status (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1431

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