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Home | Events Archive | Health Care Policy Uncertainty in the United States and its Effect on Households' Consumption and Portfolio Choice
Seminar

Health Care Policy Uncertainty in the United States and its Effect on Households' Consumption and Portfolio Choice


  • Location
    Erasmus University, Polak Building, Room 2-09
    Rotterdam
  • Date and time

    May 16, 2019
    12:00 - 13:00

Abstract: Health care reform continues to be a major topic of policy debate in the United States, making it a primary source of economic policy uncertainty even eight years after the 2010 enactment of the Affordable Care Act. At the same time, potential medical expenditures are an increasingly important contributor to households' financial risk due to rising costs of treatment. Despite the apparent importance at both the macro and micro levels, this study is the first to assess the effect of health care policy uncertainty on households. We develop a simple theoretical model that predicts a negative effect of health care policy uncertainty on both consumption and the relative demand for risky financial assets versus safe assets. The model also illustrates that the health care policy uncertainty effect can be expected to increase with bad health. By combining rich longitudinal data on older Americans and Baker et al.'s (2016) recently developed health care policy uncertainty index, these claims are tested using a pooled Tobit model, Honore's (1992) semiparametric fixed effect censored regression estimator, a concomitant-variable latent class Tobit model, and a Tobit model-based recursive partitioning procedure. The results do not indicate an economically relevant effect of health care policy uncertainty on households' durable consumption. Instead, we find substantial empirical evidence for an important effect of health care policy uncertainty on households' portfolio choice and suggestive evidence that the effect is increasing in households' health problems. These results are

robust to model specification and do not appear to be caused by potentially endogenous household characteristics (e.g., wealth) or confounding types of uncertainty (e.g., business cycle uncertainty).