Reference Health and the Demand for Medical Care. (19th December 2017)

• Record Type: Journal Article
• Authors: Harris, Matthew C.; Kohn, Jennifer L.
• Is Part Of: Economic journal. Volume 128:Number 615(2018)
• Page Start: 2812
• Page End: 2842
• Publication Date: 2017-12-19
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1111/ecoj.12554
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: We propose that health in prior periods, termed reference health, is theoretically and empirically relevant to the demand for medical care. To address non‐normality in the distributions of medical care spending, consumption, and health, we use a conditional density estimator nested in a finite mixture framework. We find that reference health can help explain the variation in spending among individuals with the same contemporaneous health, particularly in the top tail of the spending distribution. We demonstrate that omitting reference health understates the potential cost‐savings of healthy aging initiatives by 50%.