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Key Findings Details

Health and Wealth in a Life-Cycle Model
John Karl Scholz and Ananth Seshadri
WP 2010-224

  • We develop an economic model that allows us to examine the effects of hypothetical policy changes to social insurance on longevity.
  • Our model assumes that households possess health stock and that investments in health stock prolong life.
  • Our model is tested using real-life data. We find that it matches the distribution of wealth, total medical expenditures, and survival patterns of respondents in the Health and Retirement Study.
  • Since most accumulation of health capital and wealth occurs well before retirement, and health status is largely fixed by age 60-65, we find minimal effects of repeal of Medicare on the health and wealth of the elderly in the short run.
  • In the long run, however, we find Medicare repeal would have a large effect on survival probabilities, particularly in the lowest lifetime income quartile.