Health Insurance and Precautionary Saving: A Structural Analysis

Minchung Hsu

Review of Economic Dynamics, 2013, vol. 16, issue 3, 511-526

Abstract: Starr-McCluer (1996) documented an empirical finding showing that US households covered by health insurance saved more than those without coverage, which is inconsistent with the standard consumption-saving theory. This study conducts a structural analysis and suggests that institutional factors, particularly, a social insurance or safety net system and an employment-based health insurance system, can account for this puzzling finding. A dynamic equilibrium model is built that combines these two institutions with heterogeneous agents making endogenous decisions regarding saving, the labor supply and health insurance when they are young. The model, in which agents save in a precautionary manner, can generate Starr-McCluer's empirical finding. The result implies that Starr-McCluer's results are not inconsistent with the standard theory of saving under uncertainty, but it does indicate that the standard saving regression model is unable to reveal the precautionary saving motive. Counterfactual experiments are performed to provide implications for empirical analyses. (Copyright: Elsevier)

Keywords: Precautionary savings; Social insurance; Employment-based health insurance (search for similar items in EconPapers)
JEL-codes: D52 E21 I38 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (22)

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DOI: 10.1010/j.red.2012.09.001

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