Introduction
Even the best-laid plans can go awry. People face many hurdles to enough planning for retirement and, even when precautions are taken, they might be overwhelmed by a sufficiently big shock. Particularly, massive medical and long-term care (LTC) spending shocks can devastate retirees’ hard-won funds. What, then, do people and households do when first-line plans to cope with healthcare prices fail? This paper research the results of enormous out-of-pocket (OOP) medical and LTC shocks on retired households to discover this query, specializing in the Medicare-eligible inhabitants of over 65-year-olds. A big shock represents a failure of insurance coverage to insulate the family from the healthcare expenditure, both due to lack of protection (typical for LTC) or due to cost-sharing in current insurance coverage (typical in medical insurance).
The evaluation has two elements. First, it presents outcomes from a latest survey coping with healthcare shocks in retirement. This paper focuses on a small choice of questions from the survey, demonstrating what people imagine their fallback choices are after a healthcare shock. The evaluation then turns to the Well being and Retirement Examine (HRS), a big longitudinal survey, to estimate how households truly fare following a big healthcare expenditure. We look at the years 2002-2016. All through, we use “healthcare” to check with any health-related prices, whether or not they contain periodic medical care or long-term care.
A medical shock is outlined as an expenditure within the prime ten p.c of medical OOP bills in a given yr. These prices are comprised of funds to docs, hospitals, dentists, and for outpatient surgical procedure and prescribed drugs. As a result of OOP LTC spending is comparatively uncommon, an LTC shock is outlined as having any optimistic spending on nursing dwelling or dwelling care. To investigate the consequences of such shocks, the evaluation should cope with the truth that households bearing such massive OOP prices are usually not much like households spared these shocks. In response, we comply with the methodology described in Fadlon and Nielsen (2021), evaluating households that have a shock in a given yr to households that will expertise the identical shock 4 years sooner or later. The belief right here is that the precise timing of the shock is random, even when the kind of households that have such shocks shouldn’t be. The method yields a difference-in-differences estimate of the causal results of such shocks.
Briefly, we discover that LTC shocks result in drawdown of dwelling fairness; discount in bequest expectations; and, above all, elevated reliance on Medicaid. In distinction, massive medical shocks appear to be borne by people with out severely impacting their retirement trajectories; the impact of such shocks is proscribed to reductions in anticipated bequests. These patterns match particular person perceptions of counting on Medicaid in case of enormous shocks; nevertheless, people appear to not anticipate the necessity for drawing down dwelling fairness. General, outcomes level to medical shocks being comparatively well-insured whereas people are nonetheless uncovered to significant LTC danger. The outcomes are additionally according to prior work exhibiting that bequests might serve a double position as fascinating transfers to the subsequent era if attainable, but additionally as a cushion to self-insure LTC shocks if obligatory (Poterba, Venti, and Clever 2011 and Lockwood 2018).
