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Saving for Future Health Expenditures: Evidence from the Health and Retirement Study
Short Abstract
Economic theory of inter-temporal choice predicts that rational individuals will save for future needs. One of the motives for saving is as a precaution against expected, but uncertain future health risks. This precautionary motive has received a fair amount of attention in the empirical literature, but has yet to be definitively demonstrated. In this study, we use data from the Health and Retirement Study (HRS) to examine the effect of predicted future health care expenses on current wealth holdings. We find that, controlling for selection effects and endogeneity, predicted out of pocket health care expenses have a significant effect on current period wealth holdings.