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Quantifying Health Shocks over the Life Cycle

Author

Listed:
  • FUKAI Taiyo
  • ICHIMURA Hidehiko
  • KANAZAWA Kyogo
Abstract
We first show (1) the importance of investigating health expenditure processes using the order two Markov chain model, rather than the standard order one model, which is widely used in the literature. The Markov chain of order two is a minimal framework that is capable of distinguishing those who experience a certain health expenditure level for the first time from those who have been experiencing that or other levels for some time. In addition, using the model, we show (2) that the probability of encountering a health shock first decreases until around age 10, and then increases with age, particularly, after age 40, (3) that health shock distributions among different age groups do not differ until their percentiles reach the median range, but that above the median, the health shock distributions of older age groups gradually start to first-order dominate those of younger groups, and (4) that the persistence of health shocks also shows a U-shape in relation to age.

Suggested Citation

  • FUKAI Taiyo & ICHIMURA Hidehiko & KANAZAWA Kyogo, 2018. "Quantifying Health Shocks over the Life Cycle," Discussion papers 18014, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:18014
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    Cited by:

    1. FUKAI Taiyo & ICHIMURA Hidehiko & KITAO Sagiri & MIKOSHIBA Minamo, 2021. "Medical Expenditures over the Life Cycle: Persistent Risks and Insurance," Discussion papers 21073, Research Institute of Economy, Trade and Industry (RIETI).
    2. Reona Hagiwara, 2022. "Welfare Effects of Health Insurance Reform: The Role of Elastic Medical Demand," IMES Discussion Paper Series 22-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
    3. Reona Hagiwara, 2023. "Aging, Health Risk, and Interest Rates," Working Papers 2303, Waseda University, Faculty of Political Science and Economics.

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