On the Distribution and Dynamics of Medical Expenditure Among the Elderly
Using data from the Health and Retirement Study linked to administrative Medicare and Medicaid records along with the Medical Expenditure Panel Survey, we estimate the stochastic process for total and out-of-pocket medical spending. By focusing on dynamics, we consider not only the risk of catastrophic expenses in a single year, but also the risk of moderate but persistent expenses that accumulate into a catastrophic lifetime cost. We assess the reduction in out-of-pocket medical spending risk provided by public insurance schemes such as Medicare or Medicaid. We find that although Medicare and Medicaid pay the majority of medical expenses, households at age 65 will incur, on average, $59,000 in out-of-pocket costs with 10% of households incurring more than $121,000 in out-of-pocket expenses over their remaining lives.
- Over their remaining lives, households at age 65 will incur, on average, $272,000 in total medical spending, of which $59,000 will be paid out of pocket.
- At the top tail, 10% of households will incur more than $563,000 in total medical spending of which $121,000 will be paid out-of-pocket.
- The level and the dispersion of remaining lifetime medical spending diminishes only slowly with age. For example, on average, a household alive at age 90 will still spend more than $99,000 in total, and $21,000 out-of-pocket, before they die.
Arapakis, Karolos, Eric French, John Bailey Jones, and Jeremy McCauley. 2021. “On the Distribution and Dynamics of Medical Expenditure Among the Elderly.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2021-436. https://mrdrc.isr.umich.edu/publications/papers/pdf/wp436.pdf
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Paper IDWP 2021-436