| Abstract | Do wealthier individuals use more healthcare services than those less affluent? We investigate this question by exploiting the booms and busts in
the U.S. housing market – a natural experiment that generated considerable gains and losses for homeowners. We estimate the effect of wealth on
older adults’ healthcare utilization using the Instrumental Variables (IVs)
approach with the region - year variations in house prices and households’
loan-to-value (LTV) ratios to construct an instrument. As a robustness check
for count-valued outcomes, we employ a new method of identification using
heteroskedasticity (Lewbel, 2012). This method may be used to estimate
a count model with endogenous regressors, where external instruments are
not available. Using data from the 1996-2014 Health and Retirement Study
(HRS), we find that an increase in wealth lowers the probability of hospital
admissions, visits to doctors, prescription drug use, outpatient surgery and
the use of special facilities or services. On the other hand, an increase in
wealth leads to a higher probability of using dental services. At the intensive
margin, the number of doctor visits decreases in response to positive wealth
shock, but there is no significant effect on the number of nights in hospital. Overall, we find consistent evidence that wealthier individuals demand
fewer health services but they have more out-of-pocket health expenditures
compared to less wealthy individuals.
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