Abstract
We use novel longitudinal data from 19 monthly waves of the Singapore Life Panel to examine the short‐term dynamics of the effects health shocks have on household health and nonhealth spending and income by the elderly. The health shocks we study are the occurrence of new major conditions such as cancer, heart problems, and minor conditions (e.g., diabetes and hypertension). Our empirical strategy is based on an event study approach that exploits unanticipated changes in health status through the diagnosis of new health conditions. We find that major shocks have large and persistent effects whereas minor shocks have small and mainly contemporaneous effects. We find that household income reduces following a major shock for males but not females. Major health shocks lead to a decrease in households’ nonhealth expenditures that is particularly pronounced for cancer and stroke sufferers, driven largely by reductions in leisure spending. The financial impact of major shocks on medical saving account balances occurs to those without private health insurance, whereas the impact is on cash balances for privately insured individuals.
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