Medicare Part D and Portfolio Choice <sup>†</sup>

TitleMedicare Part D and Portfolio Choice
Publication TypeJournal Article
Year of Publication2016
AuthorsAyyagari, P, He, D
JournalAmerican Economic Review
Pagination339 - 342
Date PublishedJan-05-2016
ISSN Number0002-8282
KeywordsHealthcare, Investing, Medicare/Medicaid/Health Insurance, Older Adults

Economic theory suggests that medical spending risk affects the extent to which households are willing to accept financial risk, and consequently their investment portfolios. In this study, we focus on the elderly for whom medical spending represents a substantial risk. We exploit the exogenous reduction in prescription drug spending risk due to the introduction of Medicare Part D in the U.S. in 2006 to identify the causal effect of medical spending risk on portfolio choice. Consistent with theory, we find that Medicare-eligible persons increased risky investment after the introduction of prescription drug coverage, relative to a younger, ineligible cohort.

Short TitleAmerican Economic Review
Citation Key8539