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This paper examines whether or not the elderly have precautionary motives for savings against uncertain and potentially large medical costs. I analyze the relationship between purchases of (actuarially unfair) health insurance and the individual's ability to self-insure. In order to create a complete model of this behavior the government programs of Medicare and Medicaid are also incorporated into the analysis. The major results from this paper are that individuals do tend to behave in a manner that is consistent with precautionary behavior, and that even among those who do not hold private insurance, most act in a manner consistent with their being over-insured by Medicare. |
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