Endogenous health groups and heterogeneous dynamics of the elderly

We propose a methodology to classify individuals into few but meaningful health groups by estimating panel Markov switching model that exploits rich information from household surveys. Using the HRS, we identify four persistent groups, depending on individual's physical and mental disabilities. Our classification outperforms existing measures at explaining entry in nursing homes, home care, out-of-pocket medical expenses, mortality for ELSA, SHARE. Through workhorse of savings, recover an asset cost bad is twice as big when using self-reported health.