Health expenditure is a compelling problem to study in the context of US economic resources
allocation. At the individual level, healthcare consumption is high, ranking fifth in consumption
categories only after food, housing, apparel and services, and transportation. Additionally, there is
a big heterogeneity in individual health spending. For people who face severe health conditions,
the health spending burden could be extremely large. In the context of the life-cycle model, De
Nardi et al (2011) pointed out that health spending affected households’ saving and consumption
decisions over a lifetime. In this dissertation, I look at individuals’ health spending from the lifetime
perspective to study the long-term effects of health shocks.
The research question of aggregating an individual’s health spending over time is complicated
by the inter-temporal relationship of an individuals’ health spending. To address this question, I start
by looking at health spending from a cross-sectional perspective, then study the dynamic evolution
of individuals’ spending. The research is based on panel data from the Health and Retirement Study
(HRS) by RAND Center, focusing on the original HRS cohort from survey year 1996 to year 2014
(wave 3 to wave 12).