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Economic Quarterly

Nov. 20, 2018

Richmond Fed’s Economic Quarterly Examines Retiree Medical Spending

In the latest issue of Economic Quarterly, Richmond Fed economist John Bailey Jones and his coauthors explore the out-of-pocket medical spending of households over the age of 70. They analyze data from 1995–2014 and use a model to estimate how much these households spend and to discover the extent to which Medicaid can reduce out-of-pocket costs.

Jones and his coauthors find that medical spending during retirement is both high and uncertain. Permanent income, initial health status, and initial marital status all have predictable and large effects, but much of the dispersion in lifetime spending is due to events realized in later years. They also find that Medicaid lowers average medical spending by 20 percent and reduces the level and volatility of spending for both low- and high-income households, though to different extents. The authors point out that their paper does not include other medical payments, such as private insurance or Medicare, and therefore further research that includes all medical expenditures would be useful.

This article and others in the latest issue of Economic Quarterly are available on our website.

Also in this issue:

  • Inefficiency in a Simple Model of Production and Bilateral Trade by Zachary Bethune, Bruno Sultanum, and Nicholas Trachter

The Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. More information is available at (800) 322-0565 or online.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District—including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia—to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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