Household Portfolio Choices, Health Status and Health Care Systems a Cross-Country Analysis Based on Share

Abstract

Health risk is increasingly viewed as an important form of background risk that affects household portfolio decisions. However, its role might be mediated by the presence of a protective fullcoverage national health service that could reduce households' probability of incurring current and future out-of-pocket medical expenditures. We use SHARE data to study the influence of current health status and future health risk on the decision to hold risky assets, across ten European countries with different health systems, each offering a different degree of protection against outof-pocket medical expenditures. We find robust empirical evidence that perceived health status matters more than objective health status and, consistent with the theory of background risk, health risk affects portfolio choices only in countries with less protective health care systems. Furthermore, portfolio decisions consistent with background risk models are observed only with respect to middle-aged and highly-educated investors.

What Drives the Association between Health and Portfolio Choice?

“…The results show that overall there is a positive, but relatively weak, relationship between health and portfolio choice in the Netherlands, in line with the findings of Atella et al (2012). Our results further suggest that the association between health and portfolio choice reflects heterogeneity rather than a causal effect of health on portfolio choice or vice versa.…”

“…Cardak and Wilkins (2009), using the Australian HILDA survey, find that health primarily affects risky asset holdings through some proxies for risk and time preferences and that health is not a significant determinant of portfolio choice for retired households, possibly reflecting protection against ill health in Australia's National Health System (NHS). This result is confirmed by the study of Atella et al (2012), who, using the European SHARE survey, show that, across ten European countries, health status and future health risks influence portfolio choices mainly in countries that do not have an NHS.…”

“…Policy responses in the pension system involve a shift from defined benefit (DB) to defined contribution (DC) schemes, and are likely to increase reliance on individual retirement accounts and savings. In the health care sector, individuals will become more and more responsible for financing their own health care expenditures, by increased co-payments and by restrictions on health care services that are publicly financed (Atella et al, 2012). These trends imply that financial assets become increasingly important, arguably even crucial, for the financial security of households to finance consumption and to protect against financial risks associated with illness or widowhood.…”

“…Although life and health insurance are widely available, these markets are far from perfect (Atella et al, 2012). Individuals are generally not able to dynamically insure against future health shocks and medical expenditure risk (Goldman andMaestas, 2013, Edwards, 2008).…”

The effect of health shocks on Chinese urban household assets portfolio behavior

“…Atella, Brunetti and Maestas(2012) [11] claim health risk is viewed as an important influencing factor of household portfoliodecisions, however, its role might be mediated by the presence of a protective full-coverage national health service, health risk affects portfolio choices only in countries with less protective health care systems.…”