The U.S. saving rate declined by 8 percent between 1980 and 2009; we document that the decline can be explained by rising health expenditures

Explaining the decline of the US saving rate: The role of health expenditure. Yi Chen, Maurizio Mazzocco, Béla Személy. International Economic Review, April 17 2019. https://doi.org/10.1111/iere.12405

Abstract: The U.S. saving rate declined by 8 percent between 1980 and 2009. We document that the decline can be explained by rising health expenditures. Using exogenous variation in medical expenses generated by FDA drug approvals, we document that a 1 percentage point increase in health expenditure generated a decline in saving rate of 0.9 percentage points. We then estimate a model of household decisions to evaluate the mechanisms behind the decline. We find that the rise in health expenses and drop in saving rate are driven by progress in health technology, reduction in co‐payment rates, and improvements in income processes.