Medicare Part D and Portfolio Choice

Padmaja Ayyagari and Daifeng He

American Economic Review, 2016, vol. 106, issue 5, 339-42

Abstract: Economic theory suggests that medical spending risk affects the extent to which households are willing to accept financial risk, and consequently their investment portfolios. In this study, we focus on the elderly for whom medical spending represents a substantial risk. We exploit the exogenous reduction in prescription drug spending risk due to the introduction of Medicare Part D in the U.S. in 2006 to identify the causal effect of medical spending risk on portfolio choice. Consistent with theory, we find that Medicare-eligible persons increased risky investment after the introduction of prescription drug coverage, relative to a younger, ineligible cohort.

JEL-codes: D14 G11 I13 J14 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161125
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