Why Do the Elderly Save? The Role of Medical Expenses

This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using Assets and Health Dynamics of the Oldest Old data and the method of simulated moments. Out‐of‐pocket medical expen...

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Bibliographic Details
Published in:The Journal of political economy 2010-02, Vol.118 (1), p.39-75
Main Authors: De Nardi, Mariacristina, French, Eric, Jones, John B.
Format: Article
Language:English
Subjects:
Age
Aged
Asset income
Bequests
Economic theory
Health care expenditures
Health economics
Health expenditure
Health expenditures
Health insurance
Health status
Income distribution
Life expectancy
Median income
Medical care
Mortality
Older adults
Out of pocket costs
Political economy
Population economics
Retirees
Retirement
Savings
Single persons
Studies
U.S.A
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Summary:This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using Assets and Health Dynamics of the Oldest Old data and the method of simulated moments. Out‐of‐pocket medical expenses rise quickly with age and permanent income. The risk of living long and requiring expensive medical care is a key driver of saving for many higher‐income elderly. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest but also benefit the rich by insuring them against high medical expenses at the ends of their lives.
ISSN:0022-3808
1537-534X
DOI:10.1086/651674