Old-age income and health care utilization: A consumption puzzle in Mexico

This paper uses the quasi-experimental implementation of a non-contributory pension scheme in Yucatan, Mexico to evaluate the health care utilization and expenditure responses of the elderly to an exogenous unanticipated income shock. Using a difference-in-difference approach and data from a longitudinal aging survey we find evidence that non-contributory pensions encourages the use of formal health care services by 8.6 percentage points and medication adherence by approximately 6.7 percentage points. Furthermore, individuals with previous utilization shift from informal to formal services portraying a transfer to higher quality care. In contrast to the greater utilization, we find a reduction in out-of-pocket health expenditures potentially explained by the higher uptake of public health insurance. Finally, we find that non-contributory pensions reduce the incidence of catastrophic health care expenditures by 18 percentage points. Overall, our findings suggest that post-retirement income shocks can improve health care utilization, uptake of health insurance, and financial risk protection amongst the elderly.