NBER WORKING PAPER SERIES THE EFFECTS OF MEDICARE ON MEDICAL EXPENDITURE RISK AND FINANCIAL STRAIN

We estimate the current impact of Medicare on medical expenditure risk and financial strain. At age 65, out-of-pocket expenditures drop by 33% at the mean and 53% among the top 5% of spenders. The fraction of the population with outof-pocket medical expenditures above income drops by more than half. Medicalrelated financial strain, such as problems paying bills, is dramatically reduced. Using a stylized expected utility framework, the gain from reducing out-of-pocket expenditures alone accounts for 18% of the social costs of financing Medicare. This calculation ignores the benefits of reduced financial strain and direct health improvements due to Medicare. Silvia Helena Barcellos University of Southern California (USC) 12015 Waterfront Drive Playa Vista, CA 90094-2536 sbarcell@usc.edu Mireille Jacobson The Paul Merage School of Business University of California, Irvine Irvine, CA 92697-3195 and NBER jacobson@nber.org

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