We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States we show that savings for old-age, out-of-pocket expenses account for 13.5 per- cent of aggregate wealth, half of which is due to nursing home expenses; cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; and all newborns would benefit if social insurance for nursing home stays was made more generous.
"The Impact of Medical and Nursing Home Expenses on Savings."
American Economic Journal: Macroeconomics,
Intertemporal Household Choice; Life Cycle Models and Saving
Macroeconomics: Consumption; Saving; Wealth
National Government Expenditures and Health
Health Insurance, Public and Private
Health: Government Policy; Regulation; Public Health
Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination