The Impact of Health Status and Out-of-Pocket Medical Expenditures on Annuity Valuation

TitleThe Impact of Health Status and Out-of-Pocket Medical Expenditures on Annuity Valuation
Publication TypeReport
Year of Publication2004
AuthorsTurra, CM, Mitchell, OS
Series TitleMichigan Retirement Research Center Research Working Paper
Document Numberwp086
InstitutionMichigan Retirement Research Center, University of Michigan
CityAnn Arbor, MI
KeywordsAnnuitization, Health Insurance, Medicare/Medicaid/Health Insurance, Older Adults
Abstract

This paper describes how differences in health status at retirement can influence the decision to purchase a life annuity. We extend previous research on annuitization decisions by incorporating the effect of health differentials via differences in survival throughout the latter portion of life. Next, we consider how precautionary savings motivated by uncertain out-of-pocket medical expenses influence annuitization decisions. Our results show that annuities become less attractive to people facing uncertain medical expenses. While full annuitization would still be optimal if annuity markets were truly complete and both life- and health-contingent, lacking this, annuity equivalent wealth values are much lower for those in poor health, as compared to persons in good health.

URLhttps://ideas.repec.org/p/mrr/papers/wp086.html
Citation Key8554