Saturday, January 9, 2010

Adjusting to risk

A new paper  finds that after they get sick, insured people re-balance their portfolios in the obvious way.
We find that insured individuals are significantly likely to divest from risky asset holdings in response to a decline in health while the risky asset accounts of uninsured individuals demonstrate no correlation with health status when controlling for variables such as income, age, and out-of-pocket medical expenses.

The finding is somewhat counter-intuitive because one would think that health risk is bigger for uninsured individuals.

1 comment:

  1. "one would think that health risk is bigger for uninsured individuals."

    I wouldn't agree.
    The uninsured are either from those who perceive very little probability to getting seriously ill - like the young -- or from those who cannot afford health insurance (but not so poor that they qualify for Medicaid).

    I believe data shows that after eliminating the illegals and the those who can afford insurance but choose not to insure, and also eliminating those who qualify for Medicaid but failed to sign up, only 1/4 of the total uninsured are those who are too poor to buy insurance but not poor enough for Medicaid.

    I suspect that is why there is no correlation between health status and divestiture of risky assets.