This paper assesses the effect of the Affordable Care Act (ACA) on the labor supply of Americans ages 50 and older. Using data from the Health and Retirement Study and the Medical Expenditure Panel Survey, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Importantly, we model the two key channels by which health insurance rates are predicted to change: the Medicaid expansion and the subsidized private exchanges.
We show diferences in both total and out-of-pocket medical spending prior to the enactment of the ACA. We show that average total medical spending in MEPS is high for all groups. Perhaps surprisingly, those with no health insurance do not spend much more out-of-pocket than those who private insurance. Those uninsured receive health care through a variety 41 of sources such as worker’s compensation and default on medical bills, which we refer to as a “consumption foor”, which protects low income individuals against catastrophic medical spending. Those who appear to have the highest resources appear to be those who pay the most for health care, consistent with the view that those with low resources are covered by the consumption foor, whereas those with high resources face the most medical expense risk and might have the largest labor supply responses.