The Role of Housing and Financial Wealth on Healthcare Expenditure - - PowerPoint PPT Presentation

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

The Role of Housing and Financial Wealth on Healthcare Expenditure

Nayan Krishna Joshi

Department of Economics Wayne State University

Sep 19, 2013

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Outline

1

Research Topic and Motivation

2

Theoretical Framework

3

Data and Methodology

4

Econometric Methodology and Preliminiary Findings

5

Future work

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Focus on the influence of housing and financial wealth on healthcare expenditure.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Focus on the influence of housing and financial wealth on healthcare expenditure. Only few studies have provided empirical evidence on the effect of wealth on healthcare spending. These include Okunade, Suraratdecha, and Benson (2010), Marshall, McGarry, and Skinner (2010), and Kim and Ruhm (2012).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Focus on the influence of housing and financial wealth on healthcare expenditure. Only few studies have provided empirical evidence on the effect of wealth on healthcare spending. These include Okunade, Suraratdecha, and Benson (2010), Marshall, McGarry, and Skinner (2010), and Kim and Ruhm (2012).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Motivation

1

Okunade, Suraratdecha, and Benson (2010): the first study to analyse the effect of wealth (using proxies such as air conditioner, motorbike, car, television etc) on the household healthcare expenditure, but they focus on data of Thailand.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Motivation

1

Okunade, Suraratdecha, and Benson (2010): the first study to analyse the effect of wealth (using proxies such as air conditioner, motorbike, car, television etc) on the household healthcare expenditure, but they focus on data of Thailand.

2

Marshall, McGarry, and Skinner (2010): use the Health and Retirement Survey and find that the expenditures are strongly positively related to wealth but weakly related to income (near the end of life).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Motivation

1

Okunade, Suraratdecha, and Benson (2010): the first study to analyse the effect of wealth (using proxies such as air conditioner, motorbike, car, television etc) on the household healthcare expenditure, but they focus on data of Thailand.

2

Marshall, McGarry, and Skinner (2010): use the Health and Retirement Survey and find that the expenditures are strongly positively related to wealth but weakly related to income (near the end of life).

3

Kim and Ruhm (2012): use the Health and Retirement Survey and inheritances as an instrument for positive wealth shock and find positive and small but insignificant effect of shocks on the probability of positive expenditures.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Motivation

1

Okunade, Suraratdecha, and Benson (2010): the first study to analyse the effect of wealth (using proxies such as air conditioner, motorbike, car, television etc) on the household healthcare expenditure, but they focus on data of Thailand.

2

Marshall, McGarry, and Skinner (2010): use the Health and Retirement Survey and find that the expenditures are strongly positively related to wealth but weakly related to income (near the end of life).

3

Kim and Ruhm (2012): use the Health and Retirement Survey and inheritances as an instrument for positive wealth shock and find positive and small but insignificant effect of shocks on the probability of positive expenditures.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Research gap and Contribution

1

Previous studies on U.S. focus only on elderly population.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Research gap and Contribution

1

Previous studies on U.S. focus only on elderly population.

2

Previous studies donot analyze the independent role of financial and housing wealth, though the literature on wealth and consumption indicates that such effects could exist (e.g., Bostic, Gabriel, and Painter, 2009; Case, Quigley, and Shiller, 2012).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Research gap and Contribution

1

Previous studies on U.S. focus only on elderly population.

2

Previous studies donot analyze the independent role of financial and housing wealth, though the literature on wealth and consumption indicates that such effects could exist (e.g., Bostic, Gabriel, and Painter, 2009; Case, Quigley, and Shiller, 2012).

3

Previous studies donot include the most recent data (2010).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Outline

1

Research Topic and Motivation

2

Theoretical Framework

3

Data and Methodology

4

Econometric Methodology and Preliminiary Findings

5

Future work

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Grossman human capital model (1972, 2000)

1

Individuals derive utility from consumption and health: U = U(C, H)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Grossman human capital model (1972, 2000)

1

Individuals derive utility from consumption and health: U = U(C, H)

2

Health is produced by combining time inputs, t, with healthcare expenditure, M: H = H(t, M)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Grossman human capital model (1972, 2000)

1

Individuals derive utility from consumption and health: U = U(C, H)

2

Health is produced by combining time inputs, t, with healthcare expenditure, M: H = H(t, M)

3

An individual works Tw hours and faces the time constraint T: T = Tw + tM and budget constraint: wTw + R + S = Pm(1 − r) + C where, R is housing wealth and S is financial wealth

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Grossman human capital model (1972, 2000)

1

Individuals derive utility from consumption and health: U = U(C, H)

2

Health is produced by combining time inputs, t, with healthcare expenditure, M: H = H(t, M)

3

An individual works Tw hours and faces the time constraint T: T = Tw + tM and budget constraint: wTw + R + S = Pm(1 − r) + C where, R is housing wealth and S is financial wealth

4

M = M(w, T, t, R, S, Pm, r)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Grossman human capital model (1972, 2000)

1

Individuals derive utility from consumption and health: U = U(C, H)

2

Health is produced by combining time inputs, t, with healthcare expenditure, M: H = H(t, M)

3

An individual works Tw hours and faces the time constraint T: T = Tw + tM and budget constraint: wTw + R + S = Pm(1 − r) + C where, R is housing wealth and S is financial wealth

4

M = M(w, T, t, R, S, Pm, r)

5

∂M ∂R ≻ 0 if UMC ≻ 0 and ∂M ∂S ≻ 0 if UMC ≻ 0

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Outline

1

Research Topic and Motivation

2

Theoretical Framework

3

Data and Methodology

4

Econometric Methodology and Preliminiary Findings

5

Future work

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Household healthcare expenditure data are obtained from Consumer Expenditure Survey (BLS)

1

Survey also provides information on demographic characteristics and assets and liabilities

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Household healthcare expenditure data are obtained from Consumer Expenditure Survey (BLS)

1

Survey also provides information on demographic characteristics and assets and liabilities

2

Healthcare expenditure is the sum of four components: health insurance, medical services, prescription drugs, and medical supplies

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Household healthcare expenditure data are obtained from Consumer Expenditure Survey (BLS)

1

Survey also provides information on demographic characteristics and assets and liabilities

2

Healthcare expenditure is the sum of four components: health insurance, medical services, prescription drugs, and medical supplies

3

Each household is interviewed five consecutive times, once per

• quarter. Focuses only on the households who completed all

five interviews.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Household healthcare expenditure data are obtained from Consumer Expenditure Survey (BLS)

1

Survey also provides information on demographic characteristics and assets and liabilities

2

Healthcare expenditure is the sum of four components: health insurance, medical services, prescription drugs, and medical supplies

3

Each household is interviewed five consecutive times, once per

• quarter. Focuses only on the households who completed all

five interviews.

4

Uses the Survey of Consumer Finance (SCF) to impute the wealth data (Bostic, Gabriel, and Painter, 2009). SCF has relatively good coverage of wealth data compared to other surveys conducted in U.S. ( Kennickell and Woodburn, 1999)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Use the non-parametric statistical matching technique to impute the wealth data from SCF to the CES data (Bostic, Gabriel, and Painter, 2009; Galama et al.,2012)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Use the non-parametric statistical matching technique to impute the wealth data from SCF to the CES data (Bostic, Gabriel, and Painter, 2009; Galama et al.,2012)

Table : Dataset A (Recipient) and B (Donor)

a MS Age HCE b MS Age Wealth 1 U 27 22 1 U 54 22 2 M 35 19 2 M 21 17 3 U 41 47 3 U 48 15 4 U 61 41 4 U 33 14 5 U 52 17 5 U 63 13 6 U 29 15 7 M 36 19 8 M 55 24 9 U 27 18

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Table : Matched dataset

Marital Staus Age HCE donor id Wealth 1 U 27 22 9 18 2 M 35 19 7 19 3 M 41 47 7 19 4 U 61 41 5 13 5 M 52 17 1 22 Marital Status : donor class/stratification variables on which exact matching is done

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Table : Matched dataset

Marital Staus Age HCE donor id Wealth 1 U 27 22 9 18 2 M 35 19 7 19 3 M 41 47 7 19 4 U 61 41 5 13 5 M 52 17 1 22 Marital Status : donor class/stratification variables on which exact matching is done Age: matching variable on which each record in the recipient data is matched with the closest record in the donor data, according to a distance measure

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Stratification variables

1

Race: white, black, other

2

Marital status: married/living with partner, other

3

Education: twelfth grade or less, high school, some college or more

4

Occupation: not working, managers and professionals, technicians, services, operators, other

5

Family size: one, two, three, four or more

6

Tenure: homeowner, other

Matching variables: Age and Income Mahalanobis distance is used: dab = (xa − xb)′ −1(xa − xb)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Table : Correlation coefficients for variables across the surveys

CES SCF log(income) log(income) CES log(income) 1.000 0.906 SCF log(income) 0.906 1.000 CES healthcare expenditure 0.232 0.232 SCF wealth variables Gross financial wealth 0.216 0.24 Houses 0.368 0.398 Other real estate 0.129 0.141 Net financial wealth 0.209 0.233

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Outline

1

Research Topic and Motivation

2

Theoretical Framework

3

Data and Methodology

4

Econometric Methodology and Preliminiary Findings

5

Future work

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Double Hurdle Model: About seven percent of sample for 2010 have zero values for healthcare expenditures. So, need to use appropriate model. The model assumes that the households must overcome two hurdles when purchasing the healthcare (Aristei, Perali, Pieroni, 2008)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Double Hurdle Model: About seven percent of sample for 2010 have zero values for healthcare expenditures. So, need to use appropriate model. The model assumes that the households must overcome two hurdles when purchasing the healthcare (Aristei, Perali, Pieroni, 2008)

1

whether to consume the health care (participation decision)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Double Hurdle Model: About seven percent of sample for 2010 have zero values for healthcare expenditures. So, need to use appropriate model. The model assumes that the households must overcome two hurdles when purchasing the healthcare (Aristei, Perali, Pieroni, 2008)

1

whether to consume the health care (participation decision)

2

the level of consumption of the health care conditional on the participation (consumption decision).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Double Hurdle Model: About seven percent of sample for 2010 have zero values for healthcare expenditures. So, need to use appropriate model. The model assumes that the households must overcome two hurdles when purchasing the healthcare (Aristei, Perali, Pieroni, 2008)

1

whether to consume the health care (participation decision)

2

the level of consumption of the health care conditional on the participation (consumption decision).

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work 1 Observed consumption

yi =

• y∗

2i ⇐

⇒ y∗

1i > 0 and y∗ 2i > 0

0 otherwise (1)

2 Participation equation

y∗

1i = x

′

1iβ + vi

(2)

3 Consumption equation

y∗

2i = x

′

2iγ + ui

(3)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

• ui

vi

• ∼ BVN(0, Σ)

(4) Σ =

• 1

σ12 σ12 σ

• (5)

Sample likelihood for observed consumption (with independence between u and v: σ12 = 0): likelihood function for the sample with zero consumption (denoted 0) times likelihood function for the sample with positive consumption (denoted +) L =

• 1 − Φ(x

′

1iβ)Φ(x

′

2iγ)/σ +

• Φ(x

′

1iβ) 1

σφ((y − (x

′

2iγ))/σ)

• (6)

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

2007 2010 Variables APE SE p-value APE SE p-value age 0.023 0.01 0.09 0.002 0.01 0.39 agesqu 0.000 0.00 0.10 0.000 0.00 0.01 marit 0.558 0.02 0.00 0.554 0.11 0.00 edu2 0.674 0.05 0.00 0.804 0.01 0.00 edu3 0.895 0.01 0.00 1.061 0.05 0.00 hhsize2 0.372 0.00 0.00 0.428 0.02 0.00 hhsize3 0.653 0.07 0.00 0.510 0.07 0.00 hhsize4 0.470 0.12 0.00 0.310 0.06 0.00 race2

• 0.540

0.04 0.00

• 0.257

0.01 0.00 race3

• 0.450

0.31 0.13

• 0.336

0.30 0.21 region2 0.120 0.09 0.15 0.247 0.04 0.00 region3

• 0.066

0.15 0.36 0.116 0.06 0.08 region4

• 0.203

0.07 0.01 0.067 0.18 0.37

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

2007 2010 Variables APE SE p-value APE SE p-value

• ccup2

0.174 0.14 0.18 0.262 0.23 0.21

• ccup3
• 0.018

0.03 0.35 0.059 0.17 0.38

• ccup4
• 0.251

0.12 0.05

• 0.288

0.29 0.24

• ccup5
• 0.177

0.05 0.00

• 0.244

0.00 0.00

• ccup6
• 0.362

0.20 0.08

• 0.056

0.15 0.37 log income 0.211 0.07 0.00 0.262 0.06 0.00 log financial 0.012 0.01 0.09 0.001 0.00 0.38 log housevalue 0.025 0.00 0.00 0.028 0.00 0.00 log oth.real estate

• 0.005

0.00 0.20 0.001 0.00 0.00 # of observations 4715 2816 # censored obser. 281 175

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Survey of Consumer Finance (SCF) handles missing data problem by employing multiple imputation method. Under this method, SCF provides five different estimates (called implicates) resulting in a total data set with five times the actual number of households and hence five different matched datasets. The results provided earlier are only for the first implicate. However, these results are consistent with the results for other four implicates.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work

Outline

1

Research Topic and Motivation

2

Theoretical Framework

3

Data and Methodology

4

Econometric Methodology and Preliminiary Findings

5

Future work

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure

Research Topic and Motivation Theoretical Framework Data and Methodology Econometric Methodology and Preliminiary Findings Future work 1 The analysis needs to be conducted separately for the

calendar years 2004, 2001, 1998, 1995, 1992, and 1989 and then for the pooled sample (1989-2010).

2 Examine the robustness of results to using net wealth

measures (net financial wealth), home equity, and other residential real estate equity.

3 Examine whether the credit/liquidity constraints will have

effect on the households healthcare spending.

4 Use Box Cox hurdle model to take into account non-normality

in health care expenditure.

Nayan Krishna Joshi The Role of Housing and Financial Wealth on Healthcare Expenditure