TY - CONF T1 - Economic Security in Retirement: Does Borrowing from Home Equity Moderate the Impact of a Health Shock on Health Outcomes? T2 - Retirement and Disability Research Consortium 23rd Annual Meeting Y1 - 2021 A1 - Stephanie Moulton A1 - Joseph, Joshua A1 - Cäzilia Loibl A1 - Donald Haurin KW - health shock KW - Home equity KW - Retirement AB - Health shocks pose a significant risk to economic security in retirement. About 35 percent of older adults are diagnosed with a major disease by age 65, rising to 65 percent by age 90 (Poterba et al. 2018). These health shocks are costly. While the majority of older adults receive Medicare, nearly 20 percent of health expenditures are paid out of pocket (DeNardi et al. 2016). Older adults often self-insure against these risks by accumulating wealth, including home equity. In this study, we ask: To what extent does home equity mitigate the economic burden created by a health shock, ultimately leading to better health outcomes? In contrast to a life cycle model, older adults tend to only spend down home equity following an expense shock (Davidoff, 2010; Nakajima & Telyukova, 2019; Poterba & Venti, 2017a). Several recent studies document a decline in home equity after a health shock (Gilligan et al. 2018; Gupta et al. 2018; Poterba et al. 2018), with home equity being second only to formal health insurance for financing health related consumption after a health shock in older age (Dalton and LaFave 2017). These studies do not identify the extent to which liquidating home equity improves the older household’s health following a shock. An existing body of literature estimates the causal relationship between housing wealth and health outcomes generally, not limited to individuals with a health shock (Angrisani and Lee 2016; Costa-Font et al. 2019; Fichera & Gathergood 2016; Hamoudi and Dowd 2013; 2014). Similar to our approach, these studies rely on geographic and intertemporal variations in house prices to isolate the exogenous component of housing wealth, either through reduced form specifications that directly model the relationship between changes in house values or house prices on health outcomes (Angrisani and Lee 2016; Fichera & Gathergood 2016; Hamoudi and Dowd 2013; 2014) or by using geographic changes in house prices as an instrument for housing wealth (Costa-Font et al. 2019). While these papers tend to find a positive relationship between increases in housing wealth and health outcomes, they do not model the mechanisms through which this occurs—which is critical to inform policy. We expect that it is not simply the stock of home equity held by older adults that leads to better health outcomes, but the liquidation of home equity through borrowing following a health shock that leads to improved health outcomes. JF - Retirement and Disability Research Consortium 23rd Annual Meeting PB - Center for Financial Security, University of Wisconsin-Madison CY - Virtual Event UR - https://cfsrdrc.wisc.edu/files/2021-RDRC-Meeting-Booklet.pdf#page=7 ER -