Research Article

MEDICAL EXPENDITURE RISK AND HOUSEHOLD PORTFOLIO CHOICE

  1. Dana Goldman1,2,
  2. Nicole Maestas3,*

Article first published online: 14 MAY 2012

DOI: 10.1002/jae.2278

Issue

Journal of Applied Econometrics

Journal of Applied Econometrics

Special Issue: Themes in Applied Microeconometrics

Volume 28, Issue 4, pages 527–550, June/July 2013

Additional Information

How to Cite

Goldman, D. and Maestas, N. (2013), MEDICAL EXPENDITURE RISK AND HOUSEHOLD PORTFOLIO CHOICE. J. Appl. Econ., 28: 527–550. doi: 10.1002/jae.2278

Author Information

  1. 1

    School of Policy, Planning and Development, University of Southern California, Los Angeles, CA, USA

  2. 2

    NBER, Cambridge, MA, USA

  3. 3

    RAND, Santa Monica, CA, USA

*Correspondence to: Nicole Maestas, RAND, PO Box 2138, 1776 Main Street, Santa Monica, CA 90407, USA. E-mail: maestas@rand.org

Publication History

  1. Issue published online: 25 APR 2013
  2. Article first published online: 14 MAY 2012
  3. Manuscript Revised: 21 NOV 2012
  4. Manuscript Received: 18 SEP 2009

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SUMMARY

Medical expenses are an increasingly important contributor to household financial risk. We examine the effect of medical expenditure risk on the willingness of Medicare beneficiaries to hold risky assets. Using a discrete-factor maximum likelihood method to address the endogeneity of insurance choices, we find that having a moderately protective Medigap or employer supplemental policy increases risky asset holding by 7.1 percentage points relative to those without supplemental coverage, while participation in a highly protective Medicare health maintenance organization increases risky asset holding by 13.0 percentage points. Our results highlight an important link between the availability of health insurance and financial behavior. Copyright © 2012 John Wiley & Sons, Ltd.

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