Health Inequalities and the Progressivity of Old-Age Social Insurance Programs

J van der Vaart, Max Groneck and R van Ooijen

Health, Econometrics and Data Group (HEDG) Working Papers from HEDG, c/o Department of Economics, University of York

Abstract: A well-established negative correlation exists between lifetime income and health and mortality risk. We quantify the welfare implications of living longer and using less LTC by higher incomes, implying higher lifetime retirement income and lower lifetime LTC cost. To this end, we model singles’ and couples' consumption and saving behavior throughout the life cycle. Households face uncertain labor income at working age and uncertain and heterogeneous health and mortality across socioeconomic groups, so precautionary savings will differ across these groups. In addition, we assume that households value living and giving bequests to their heirs, implying a potential saving motive for bequests. We estimate the parameters of the model using unique administrative data from the Netherlands. Old-age insurance programs for retirement and LTC provision result in a substantial redistribution of welfare due to socioeconomic inequalities in LTC needs and mortality. The welfare effect amounts to 23.4% additional consumption after age 65 for the income-rich compared to those in the bottom lifetime income quartile. A large part of 22.2pp of the welfare gain for the richer households is explained by their strong preferences for leaving bequests: they have lower co-payments for LTC and more retirement income, which they spend on leaving a larger bequest upon death.

Keywords: socioeconomic inequalities; long-term care and mortality risk; retirement programs; couples' life-cycle model (search for similar items in EconPapers)
JEL-codes: D15 H55 I14 J14 J17 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-age, nep-dge and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:yor:hectdg:24/20

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