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Do Potential Future Health Shocks Keep Older Americans from Using Their Housing Equity?

Tim Murray ()

2018 Papers from Job Market Papers

Abstract: Many retirees retain their housing equity until they die and do not utilize it to help finance spending on consumption. In this paper, I examine how older Americans (age 55+) may use their house as a form of precautionary savings in the event they face an increase in out-of-pocket medical expenses due to a health shock. I find that households are 12-percentage points more likely to own a home in their late retirement years if they might face an unexpected increase in medical bills, indicating that many of such households prefer not to own but choose to knowing they may get sick and face an increase in out-of-pocket medical expenses. Accordingly, I propose an insurance policy that would cover any out-of-pocket medical expenses not covered by Medicaid. When the price of the insurance policy is between 0.15%-0.50% of each householdâs house value, 12.8% of households purchase the insurance policy. In the presence of an insurance policy and health shocks, the homeownership and moving rates look like an economy without health shocks, thus correcting a possible market failure that causes households to use their house as a form of precautionary savings.

JEL-codes: D14 D15 E13 R21 (search for similar items in EconPapers)
Date: 2018-11-13
New Economics Papers: this item is included in nep-age, nep-hea, nep-ias, nep-mac and nep-ure
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https://ideas.repec.org/jmp/2018/pmu533.pdf

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Working Paper: Do potential future health shocks keep older Americans from using their housing equity? (2019) Downloads
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