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WP202312-Old-age-risks-consumption-and-insurance.pdf
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In the U.S, after age 65, households face income and health risks and a large fraction of these risks are transitory. While consumption significantly responds to transitory income shocks, out-of-pocket medical expenses do not. In contrast, both consumption and out-of-pocket medical expenses respond to transitory health shocks. Thus, most U.S. elderly keep their out-of-pocket medical expenses close to a satiation point that varies with health. Consumption responds to health shocks mostly because adverse health shocks reduce the marginal utility of consumption. The effect of health on marginal utility changes the optimal transfers due to health shocks.
Authors

CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.

Research Associate University of Torino
Margherita is a Research Associate and an Associate Professor at the University of Torino.

Research Fellow University of Minnesota and Federal Reserve Bank of Minneapolis
Mariacristina is an Research Fellow at the IFS and also a Professor in the Economics Department at the University of Minnesota.
Assistant Professor of Economics Sciences Po
Working Paper details
- DOI
- 10.1920/wp.ifs.2023.1223
- Publisher
- Institute for Fiscal Studies
Suggested citation
Blundell, R et al. (2023). Old age risks, consumption, and insurance. 23/12. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/old-age-risks-consumption-and-insurance (accessed: 3 December 2023).
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