Although health care subsidies are smaller in the United States than in other industrialized countries, the US government still spends a large amount of money on health care. In 2022, the US government spent $1.9 trillion on public health insurance (i.e., Medicare, Medicaid, the Children’s Health Insurance Program, and veterans’ benefits), which is 42 percent of total national health care spending. Intense debate remains over the proper level of government subsidies and interventions in health care markets, with many proposals, such as the Medicare for All bill, seeking to substantially increase government spending and reduce out-of-pocket costs.
However, broadening access to needed medical care could incentivize excessive consumption of health care—that is, it could encourage people to seek unnecessary health care. Therefore, achieving the optimal level of government health care subsidies requires balancing this trade-off between the intended benefit and its unintended consequences. If a substantial portion of consumers under the current system have unmet medical needs because they have difficulty accessing credit, further subsidies could be beneficial. However, by making health care services cheaper for consumers, further subsidies could increase wasteful health care consumption, thus raising costs to taxpayers and dedicating more resources to health care without commensurate health benefits.
Our research examines the extent to which elderly people are constrained in their health care consumption by estimating the effects of housing wealth on out-of-pocket medical spending. Higher wealth may lead to more health care consumption, and this effect would be larger if the increases in wealth expand households’ access to credit. Our analysis focuses on the housing market because housing wealth is a significant component of asset portfolios, home prices have fluctuated greatly in the past several decades, and housing wealth is increasingly liquid due to home equity loans, home equity lines of credit, and reverse mortgages. Thus, fluctuations in home prices change the level of wealth available to homeowners to spend on health care.
Our research uses data on price changes in the US housing market from the Zillow Home Value Index combined with nationally representative data from the Health and Retirement Study of the University of Michigan on health care expenditures from 1998 to 2018 for Americans aged 50 and older and their partners. The data encompass several categories of health care spending, including prescription drugs, nursing home stays, outpatient visits, and home health care. Additionally, our analysis accounts for economic conditions in each county and several demographic characteristics of the study’s respondents.
Our findings indicate that changes in housing wealth have insignificant effects on medical expenditures. Specifically, our estimates suggest that a $10,000 increase in home prices over two years led to a $5.02 decrease in total out-of-pocket medical expenditures. We cannot rule out that a $10,000 increase in home prices had no effect on medical expenditures, but we can exclude the possibility that it increased health care spending by more than $5.16. Similarly, our analysis estimates that a $10,000 increase in home prices over four years decreased medical expenditures by $0.50, and we can rule out increases of more than $8.04. The average total out-of-pocket medical expenditures among the respondents we studied was about $3,900, so the estimated effects are small.
Furthermore, our research explores whether changes in home prices affected out-of-pocket medical expenditures differently for various demographic groups and spending categories. First, we separately considered each quartile of the expenditure distribution. Second, we examined the effects that changes in home prices had on people according to their Medicare enrollment status, health insurance status, household income, net household wealth, and net housing wealth. Third, we studied the effects on four distinct categories of expenditures: overnight hospital and nursing home stays; doctor visits, dental visits, and outpatient surgery; prescription drugs; and home health care and special health facilities. In all cases, our findings suggest that increases in housing wealth do not increase older Americans’ out-of-pocket medical spending.
These findings suggest that a lack of access to credit does not generally prevent elderly homeowners from accessing needed medical care. Thus, at least for elderly homeowners, increases in government subsidies for health care likely would not increase access to needed medical care and instead could incentivize excessive or unnecessary health care consumption.
