TY  - JOUR
AU  - Goldman,Dana
AU  - Maestas,Nicole
TI  - Medical Expenditure Risk and Household Portfolio Choice
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11818
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11818
L1  - http://www.nber.org/papers/w11818.pdf
N1  - Author contact info:
Dana Goldman
Schaeffer Center for Health Policy and Economics
University of Southern California
3335 S. Figueroa St, Unit A
Los Angeles, CA 90089-7273
Tel: (213) 821-7948
Fax: (213) 740-3460
E-Mail: dana.goldman@usc.edu

Nicole Maestas
RAND Corporation
1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
E-Mail: Nicole_Maestas@rand.org
AB  - As health care costs continue to rise, medical expenses have become an increasingly important contributor to financial risk. Economic theory suggests that when background risk rises, individuals will reduce their exposure to other risks. This paper presents a test of this theory by examining the effect of medical expenditure risk on the willingness of elderly Medicare beneficiaries to hold risky assets. We measure exposure to medical expenditure risk by whether an individual is covered by supplemental insurance through Medigap, an employer, or a Medicare HMO. We account for the endogeneity of insurance choice by using county variation in Medigap prices and non-Medicare HMO market penetration. We find that having Medigap or an employer policy increases risky asset holding by 6 percentage points relative to those enrolled in only Medicare Parts A and B. HMO participation increases risky asset holding by 12 percentage points. Given that just 50 percent of our sample holds risky assets, these are economically sizable effects. It also suggests an important link between the availability and pricing of health insurance and the financial behavior of the elderly.
ER  -