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Does Major Illness Cause Financial Catastrophe?

Objective. We examine the financial impact of major illnesses on the near-elderly and how this impact is affected by health insurance.

Data Sources. We use RAND Corporation extracts from the Health and Retirement Study from 1992 to 2006.1

Study Design. Our dependent variable is the change in household assets, excluding the value of the primary home. We use triple difference median regressions on a sample of newly ill/uninsured near elderly (under age 65) matched to newly ill/insured near elderly. We also include a matched control group of households whose members are not ill.

Results. Controlling for the effects of insurance status and illness, we find that the median household with a newly ill, uninsured individual suffers a statistically significant decline in household assets of between 30 and 50 percent relative to households with matched insured individuals. Newly ill, insured individuals do not experience a decline in wealth.

Conclusions. Newly ill/uninsured households appear to be one illness away from financial catastrophe. Newly ill insured households who are matched to uninsured households appear to be protected against financial loss, at least in the near term.

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