Medicaid insurance in old age

  • Eric French Eric French
  • John Bailey Jones John Bailey Jones
  • Mariacristina De Nardi Mariacristina De Nardi

The old age provisions of the Medicaid program were designed to insurepoor retirees against medical expenses. However, it is the rich who are most likely to live long and face expensive medical conditions when very old. We estimate a rich structural model of savings and endogenous medical spending with heterogeneous agents, and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees.We find that retirees with high lifetime incomes can end up on Medicaid, and often value Medicaid’s insurance features the most, as they face a larger risk of catastrophic medical needs at old ages, and face the greatest consumption risk. In addition, our compensating differential calculations indicate that retirees value Medicaid insurance at more than its actuarial cost, but that most would value expansions of the current Medicaid program at less than cost, thussuggesting that the Medicaid program may currently be of the approximately right size.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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