Working Paper: NBER ID: w19151
Authors: Mariacristina De Nardi; Eric French; John Bailey Jones
Abstract: The old age provisions of the Medicaid program were designed to insure poor retirees against medical expenses. However, it is the rich who are most likely to live long and face expensive medical conditions when very old. We estimate a structural model of savings and endogenous medical spending with heterogeneous agents and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees. \n\nWe find that retirees with high lifetime incomes can end up on Medicaid and often value Medicaid insurance the most, as they face a larger risk of catastrophic medical needs at old ages and face the greatest consumption risk. Compensating variation calculations indicate that current retirees value Medicaid insurance at more than its actuarial cost, but that most would value an expansion of the current Medicaid program at less than its cost. These findings suggest that for current single retirees, the Medicaid program may be of the approximately right size.
Keywords: Medicaid; Insurance; Old Age; Elderly; Medical Expenses
JEL Codes: D11; D14; D31; E21; H2; I14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high medical spending (H51) | Medicaid eligibility (I18) |
| income (E25) | Medicaid recipiency rate (I18) |
| medical shocks (I11) | Medicaid enrollment (I18) |
| lower income brackets (D31) | greater compensation to maintain utility if Medicaid benefits reduced (J32) |
| current Medicaid program size (I18) | perceived value by single retirees (J26) |
| Medicaid benefits reduction (I18) | utility maintenance compensation (J65) |