1. James Poterba & Steven Venti RRC Symposium, Washington August 3 2017
Financial Well-Being in Late Life: The Impact of Adverse Health Shocks and Spousal Deaths
James Poterba & Steven Venti RRC Symposium, Washington
August

2. Growing Research Interest in Late-Life Medical Expenses
Central driver of precautionary saving in lifecycle models
Potentially important explanation of how some individuals reach late life with very little wealth
Key to assessing social safety net

3. New Evidence on “Wealth Cost” of Late-Life Health Shocks
Focus on longitudinal data for HRS sample over age 65
Self-reported data on health status, health conditions, and care episodes
Detailed data on net worth and its components
Measure wealth change in two year intervals including health shock

4. Strengths and Weaknesses of Wealth Cost Measure
Captures full cost of a health episode, not just “medical” bills
Net of public and private insurance
Weaknesses:
May confound non-health spending with health outlays: Wt+1 = (1+r)Wt + Yt - Mt - Ct
Measurement error in wealth
May miss end-of-life expenses

5. Age-Specific Probability of First Stroke for Men

6. Age-Specific Probability of First Stroke for Women

7. Age-Specific Probability of First Arthritis Diagnosis for Women

8. Age-Specific Probability of First Arthritis Diagnosis for Men

9. Lifetime Probability of Diagnosis for Condition-Free 65 Year Old
Women
Men
Stroke
0.24
0.21
Heart Attack
0.14
0.19
Cancer
0.22
0.30
Lung Disease
0.18
Arthritis
0.55
0.46
Diabetes
Hypertension
0.45
0.39
Psychiatric Problems
0.15

10. Percent of 65+ HRS Sample with New Health Condition in Two-Year Period
All
Single Women
Married Women (incl. Spouse)
Stroke
3.8%
3.3%
4.5%
Heart Attack
2.8
1.7
Cancer
4.9
2.7
6.9
Lung Disease
3.0
2.4
3.7
Arthritis
14.7
13.2
18.2
Diabetes
4.3
5.7
Hypertension
13.8
11.6
17.8
Psychiatric Problems
3.3
3.5

11. Percent of 65+ HRS Sample with New Health Condition in Two Year Period
All
Single Women
Married Women (incl. Spouse)
Hospitalization
43.1
35.6
50.8
Nursing Home Stay
8.9
11.6
7.8
Death of Spouse
3.6
9.5

12. Estimate of “Wealth Cost” of New Diagnosis or Health Event
Condition
All
Stroke
-$25,393
Heart Attack
-6,262
Cancer
8,808
Lung Disease
-29,076
Arthritis
-11,242
Diabetes
4,248
Hypertension
10,349
Psychiatric Problems
-13,180
Hospitalization
-7,597
Nursing Home Stay
-14,999
Death of Spouse
-31,317

13. Wealth Cost of Stroke Diagnosis by Gender and Marital Status
Condition
All
-$25,393
Single Women
-19,854
Single Men
-44,219
Married Women
-17,040
Married Men
-33,679

14. Insurance and the Wealth Cost of Health Shocks
Limited Evidence that Supplemental Health Insurance Coverage Reduces Wealth Cost (three diagnoses: Cancer, Diabetes, and Psychiatric Disorders)
Long Term Care Insurance (LTC) is Associated with Lower Wealth Drop

15. Lifetime Expected Cost of Stroke (Starting at Age 65)
pa = probability of new stroke diagnosis at
age a
sa = survival probability from 65 to a
da = wealth cost of stroke diagnosis
r = discount rate (2.5 percent real)

16. Lifetime Expected Cost of Stroke by Gender and Marital Status
Condition
All
Single Women
$3,621
Single Men
7,611
Married Women
5,741
Married Men
8,414

17. Lifetime Expected Cost of Various Health Conditions and Episodes
Lung Disease
Hospital Stay
Nursing Home Stay
Loss of Spouse
Single Women
$1,163
$15,653
$8,918 $0
Single Men
6,799
14,090
5,476
Married Women
9,304
41,422
11,787
24,446
Married Men
8,867
33,771
6,553
7,701

18. Conclusions
Expected wealth cost of health conditions ranges from $30K (Singles) to $65-90K (Marrieds)
Between 6 and 12% of household net worth
Compares well with previous estimates
Open question: how does level of net worth interact with “wealth cost”