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The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments

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  • Tal Gross
  • Timothy J. Layton
  • Daniel Prinz

Abstract

Insurance is typically viewed as a mechanism for transferring resources from good to bad states. However, insurance may also transfer resources from high-liquidity periods to low-liquidity periods. We test for this type of transfer from health insurance by studying the distribution of Social Security checks among Medicare recipients. When Social Security checks are distributed, prescription fills increase by 6–12 percent among recipients who pay small copayments. We find no such pattern among recipients who face no copayments. The results demonstrate that more complete insurance allows recipients to consume healthcare when they need it rather than only when they have cash.

Suggested Citation

  • Tal Gross & Timothy J. Layton & Daniel Prinz, 2022. "The Liquidity Sensitivity of Healthcare Consumption: Evidence from Social Security Payments," American Economic Review: Insights, American Economic Association, vol. 4(2), pages 175-190, June.
    • Handle: RePEc:aea:aerins:v:4:y:2022:i:2:p:175-90
    DOI: 10.1257/aeri.20200830
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    4. Timothy K. M. Beatty & Joakim A. Weill, 2024. "Social Security and High-Frequency Labor Supply: Evidence from Uber Drivers," Finance and Economics Discussion Series 2024-079, Board of Governors of the Federal Reserve System (U.S.).
    5. Yoko Ibuka & Junya Hamaaki, 2024. "Income Receipt, Economic Activities, and Health: Evidence from Ambulance Transport Patterns," Working Papers 202401, University of Hawaii at Manoa, Department of Economics.
    6. Anderson, David M. & Hoagland, Alex & Zhu, Ed, 2024. "Medical bill shock and imperfect moral hazard," Journal of Public Economics, Elsevier, vol. 236(C).
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    9. Carlos Alberto Belchior & Yara Gomes, 2022. "Liquidity constraints, cash transfers and the demand for health care in the Covid‐19 pandemic," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2369-2380, November.
    10. Guettabi, Mouhcine & Witman, Allison, 2023. "Universal cash transfers and prescription utilization: Evidence from the Alaska permanent fund dividend," Journal of Health Economics, Elsevier, vol. 90(C).
    11. Amitabh Chandra & Evan Flack & Ziad Obermeyer, 2021. "The Health Costs of Cost-Sharing," NBER Working Papers 28439, National Bureau of Economic Research, Inc.
    12. Yang, Feng-An & Chang, Hung-Hao, 2023. "Impact of a pension program on healthcare utilization among older farmers: Empirical evidence from health claims data," World Development, Elsevier, vol. 169(C).
    13. Liu, Hong & Ma, Jinqiu & Zhao, Liqiu, 2023. "Public long-term care insurance and consumption of elderly households: Evidence from China," Journal of Health Economics, Elsevier, vol. 90(C).
    14. Marks, Mindy & Prina, Silvia & Tahaj, Redina, 2023. "Short-Term Labor Supply Response to the Timing of Transfer Payments: Evidence from the SNAP Program," IZA Discussion Papers 16299, Institute of Labor Economics (IZA).
    15. Thomson, Sarah & Cylus, Jonathan & Al Tayara, Lynn & Martínez, Marcos Gallardo & García-Ramírez, Jorge Alejandro & Gregori, María Serrano & Cerezo-Cerezo, José & Karanikolos, Marina & Evetovits, Tamás, 2024. "Monitoring progress towards universal health coverage in Europe: a descriptive analysis of financial protection in 40 countries," LSE Research Online Documents on Economics 122773, London School of Economics and Political Science, LSE Library.

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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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