Health Cost Risk, Informal Insurance, and Pension Decisions

This paper provides empirical evidence on how health cost risk affects individuals’
pension decisions. We find that health cost risk increases pension participation but decreases the
amount of contributions among participants. The substitution effect of informal insurance on
pensions leads to this paradox. After accounting for informal insurance, health cost risk has a
consistently negative impact on both pension participation and contributions, aligning with the
theory. The substitution effect is stronger for households with better-educated children, yet does
not vary by children’s gender