Medical Spending Risk among Retired Households by Race

We estimate racial differences in total and out-of-pocket medical expenditures, using data from the Health and Retirement Study linked to Medicare and Medicaid records and a dynamic empirical model. White, Black, and Hispanic households have similar total annual medical expenditures. However, minorities have fewer financial resources and thus have higher Medicaid recipiency and lower out-of-pocket spending. At age 65, White, Black, and Hispanic households incur on average $136,000, $59,000, and $72,000, respectively, in discounted out-of-pocket medical spending over the remainders of their lives. We use our model to evaluate a policy reform that expands public nursing home insurance. Given that White households currently pay the most out-of-pocket, this reform will, in the absence of a highly redistributive funding scheme, on average redistribute financial resources from minorities to White households, illustrating how expanding public insurance can have surprising distributional consequences.