Veritas propter investigationem [Truth through research]
TitleDo Health Shocks Reduce Consumption in Retirement? (2008)
AuthorsBarbara Butrica
 Richard Johnson
 Gordon Mermin
InstitutionUrban Institute
TopicsHealthcare issues
 Well-being in retirement
 Retiree healthcare costs
CountryUnited States
Date Published2008
Date posted on PR24 Jun 2014
Butrica, B Johnson, R Mermin, G, (2008). Do Health Shocks Reduce Consumption in Retirement? (2008) Urban Institute,

PensionReforms’ summary and comments

As people age, chronic health conditions mean higher out-of-pocket health costs, especially in the US.  However, those higher costs seem not to affect other types of household spending as this 2008 report illustrates.


The higher costs of chronic conditions are real enough:

“After other factors are controlled for, unmarried adults in their 50s and early 60s with one chronic condition spend 59 percent more out of pocket on health care than those with no chronic conditions.  Those with three or more chronic conditions spend 115 percent more than those with no conditions.  Similar patterns hold for those ages 65 and older and for married households.”


What surprised the authors was that those higher costs seem not to affect the standard of living of the old:

“Yet, the presence of chronic conditions does not reduce household spending on goods and services unrelated to health care, even when the models exclude housing spending, which is often difficult to control in the short term.”


Given the cost of healthcare in the US and the limits of coverage under Medicare, we might have expected reductions in expenditure on non-health items to allow for the health-related, out-of-pocket costs.


“These results do not necessarily imply that chronic conditions and the out-of-pocket health spending they generate do not create financial burdens for older Americans.”


Many cope by reducing financial savings, borrowing or relying on other family members or even going without needed care.  The authors also noted possible data gaps.


“Nonetheless, if our preliminary estimates hold up, they suggest that out-of-pocket health spending associated with chronic medical conditions does not significantly reduce economic well-being for older Americans, and suggest that the current system of private and public insurance protects most older people.”


Further work is needed.


PensionReforms suggests the report’s findings probably need illuminating by further work that looks at household wealth (rather than spending) before and during episodes of chronic health. 


We know, for example, that the median retiree’s wealth seems to increase over retirement (see here); also that health shocks do have an impact on financial wealth and decisions about selling the family home (see here).  It would be nice to update those with the impact of chronic health conditions that are more likely amongst the elderly.  (File size 128KB; 23 pp) 683