On the Distribution and Dynamics of Medical Expenditure among the Elderly

Using data from the Health and Retirement Study (HRS), we estimate the stochastic process for
total medical spending and its components. By focussing on dynamics, we consider not only
the risk of catastrophic expenses in a single year, but also the risk of moderate but persistent
expenses that accumulate into a catastrophic lifetime cost. We also assess the reduction in
out-of-pocket medical spending risk provided by public insurance schemes such as Medicare
or Medicaid.