End-of-Life Medical Expenses

French, Eric; Jones, John Bailey; Kelly, Elaine; McCauley, Jeremy

doi:10.21144/wp18-18

Cited by 2 publications

(2 citation statements)

References 83 publications

(111 reference statements)

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“…Unsurprisingly, these results confirm all our previous findings. Consistent with the data, our simulated life cycles feature end‐of‐life depletion of both health (Banks et al, ; Case & Deaton, ; Smith, ; Heiss, ) and wealth (De Nardi et al, ; French et al, ; De Nardi et al, ; ). Indeed, the optimal strategy is to bring down net total wealth N 0 ( W t , H t ) in Panel d to zero (i.e., reach the lower limits of admissible set

scriptA

) at terminal age at which stage agents are indifferent between life and death.…”

Section: Resultssupporting

confidence: 82%

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Closing down the shop: Optimal health and wealth dynamics near the end of life

2019

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The observed health decline near the end of life coincides with less curative (e.g. hospital stay, doctor visits), and more comfort (e.g. nursing home) care, which accelerate both the fall in wealth, and the timing of death. We investigate whether these dynamics jointly result from a closing down the shop decision i.e. a depletion of the health stock is optimally selected (and eventually accelerated), leading to states characterized by indifference between life, and death. Towards that aim, we expand, structurally estimate, and simulate a life cycle model of financial, and health expenses with endogenous mortality exposure (Hugonnier et al., 2013).Under economically plausible, and statistically verified conditions, we find that, unless sufficiently rich and healthy, agents will optimally select expected depletion of their health capital, and associated increase in death likelihood. Moreover, we identify a wealth and health locus below which agents accelerate their health depletion. Importantly, wealth is also expected to decline for all, such that all surviving agents eventually enter the closing down phase.JEL classification: D91, D14, I12 1 optimality of these joint end-of-life health and wealth dynamics. More precisely, we look at conditions under which health, and wealth depletion is optimally selected to fall towards a region associated with very high mortality risk, and indifference between life and death. Put differently, agents optimally choose to let go, i.e. to close down the shop. The conditions under which they do are associated with lower wealth, such that richer individuals delay the health depletion. However, we show that under reasonable assumptions, wealth depletion is also optimally selected, such that agents eventually enter the closing-down phase. We further identify threshold effects whereby the depletion of the health capital is initially slowed down, before being accelerated.This paper has two main contributions: theoretical and empirical. First, we build upon a rich life cycle model developed in Hugonnier, Pelgrin and St-Amour (2013) in order to identify optimal depletion, and acceleration. This model encompasses a health investment setup with endogenous exposure to death risk, and exogenous sickness shocks that further depreciate the health capital. In addition to investing in their health, agents can buy actuarially fair insurance against health shocks, and save in risky, and risk-less assets. Agents also earn income, part of which is fixed (e.g. social security), and part which is health-dependent, reflecting their physical ability to work. Finally, preferences are characterized by subsistence consumption, as well as by generalized attitudes towards the various sources of risk (mortality, morbidity, and financial), and towards intertemporal substitution. Importantly, they also guarantee strict ex-ante preference for life, so that agents have no proclivity for death over life.We rely on the closed-form solutions of that model in order to characterize the optimal dynamics for health, and ...

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scriptA

) at terminal age at which stage agents are indifferent between life and death.…”

Section: Resultssupporting

confidence: 82%

“…In addition, LTC expenses are not covered by Medicare and are rarely insured against through private markets. 8 DeNardi et al (2016),De Nardi et al (2015),Marshall et al (2010),Love et al (2009),French et al (2006), andPalumbo (1999). 9 SeeGrossman (2000) andGalama (2015) for reviews.…”

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confidence: 99%

Closing down the shop: Optimal health and wealth dynamics near the end of life

2019

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Flexible insurance for long‐term care: A study of stated preferences

Bateman

Stevens³

et al. 2022

J of Risk & Insurance

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Aging societies need efficient and flexible systems to finance care for the frail elderly. We study pre-retirees' demand for flexible insurance that can finance informal long-term care by paying income in poor health states instead of reimbursing formal care costs.We collect and analyze stated preferences for this longterm care income product, and preferences for informal care. When asked to allocate wealth to a life annuity, a liquid investment and flexible long-term care insurance, around 75% of our sample of 1008 preretirees choose some long-term care cover. Study participants treat long-term care income insurance as a complement to informal care from their families. Females who expect to rely exclusively on extensive care from family members prefer more cover than similar males. We also find that if long-term care income insurance were available, some healthier seniors would purchase additional longevity insurance, using liquid funds otherwise set aside to self-insure long-term care risk.

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End-of-Life Medical Expenses

Cited by 2 publications

References 83 publications

Closing down the shop: Optimal health and wealth dynamics near the end of life

Closing down the shop: Optimal health and wealth dynamics near the end of life

Flexible insurance for long‐term care: A study of stated preferences

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