Old Age Risks, Consumption, and Insurance

TitleOld Age Risks, Consumption, and Insurance
Publication TypeReport
Year of Publication2023
AuthorsBlundell, R, Borella, M, Commault, J, De Nardi, M
InstitutionEconomic and Social Research Council

In the U.S, after age 65, households face income and health risks and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most U.S. elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks.

Citation Key13238