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F2a Managing a Health Shock in Older Age: Housing Wealth, Mortgage Borrowing, and Medication Adherence
Key Words
Home Equity, Mortgage, Retirement, Health Shock, Medication Adherence
Short Description
The relationship between wealth and health is an important yet complex topic for health economics. We investigate the wealth-health link by explicitly modeling the effect of liquidating home equity through mortgage borrowing on health expenditures, measured here as cost-related non-adherence to medications (CRN), following the onset of one of six costly diseases on or after age 65. Using individual-level data from the 2002-2018 waves of the U.S. Health and Retirement Study, we exploit exogenous spatial and intertemporal variation in ZIP-code level house prices, and indicators for borrowing constraints, to instrument for borrowing. Our two-stage least squares linear probability models with individual fixed effects estimate that each additional $10,000 in new mortgage borrowing is associated with a 1.6 percentage-point reduction in cost-related medication non-adherence. The effect of mortgage borrowing on non-adherence is substantially larger for homeowners for whom housing wealth represents the majority of their total wealth. Results support the importance of housing wealth as a resource that can be tapped to support health in retirement, particularly for homeowners with few other sources of wealth.