Health Care Policy Uncertainty in the US

Despite the apparent importance at both the macro and micro levels, this study is the first to assess the effect of health care policy uncertainty on households. We develop a simple theoretical model that predicts a negative effect of health care policy uncertainty on both consumption and the relative demand for risky financial assets versus safe assets.

The model also illustrates that the health care policy uncertainty effect can be expected to increase with bad health. By combining rich longitudinal data on older Americans and Baker et al.'s (2016) recently developed health care policy uncertainty index, these claims are tested using a pooled Tobit model, Honore's (1992) semiparametric fixed effect censored regression estimator, a concomitant-variable latent class Tobit model, and a Tobit model-based recursive partitioning procedure.

The results do not indicate an economically relevant effect of health care policy uncertainty on households' durable consumption. Instead, we find substantial empirical evidence for an important effect of health care policy uncertainty on households' portfolio choice and suggestive evidence that the effect is increasing in households' health problems. These results are robust to model specification and do not appear to be caused by potentially endogenous household characteristics (e.g., wealth) or confounding types of uncertainty (e.g., business cycle uncertainty).