TABLE OF CONTENTS
Preface
Introduction
DOI: 10.7208/chicago/9780226426709.003.0000
[economics of aging;retirement;health trends;health outcomes;financial security;wellbeing]
This is the sixteenth in a series of NBER volumes that highlight economics of aging research. The demographic backdrop to the research in this volume is substantially different from when the program began 30 years ago. Today, the leading edge of the baby boom generation is entering their 70s. Many are retiring from paid work, yet they are living longer than ever. Their health and financial wellbeing are shaped by individual decisions people made through the life course, as well as by unanticipated events, economic conditions, medical innovations, and a rapidly evolving landscape of policy incentives and supports. What is most apparent from the research conducted through the program over the years is how integrally related are the multiple dimensions of people’s wellbeing. The current volume is organized in three sections, corresponding to three aspects of wellbeing: financial, physical and emotional. The first four chapters look at factors relating to people’s financial circumstances in later life, such as saving, homeownership, and the use of accumulated assets in retirement. The next five chapters in the volume focus on health and disability. The last two chapters in the volume explore issues in mental health, emotional wellbeing, life satisfaction, or happiness. (pages 1 - 14)
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1. Trends in Pension Cash-out at Job Change and the Effects on Long-term Outcomes
DOI: 10.7208/chicago/9780226426709.003.0001
[pensions;financial security;retirement resources;economic shocks;health shocks]
Might the financial security of working Americans during retirement be jeopardized by their ability to cash out their pension plans when they leave a job? Federal tax rules discourage such actions, but limited evidence suggests the practice is common. This paper uses long-term longitudinal data in the Health and Retirement Study to update prior findings, investigate cohort differences and study the long-term consequences of pension cash-out at job separation. We find pension cash-out is more concentrated among workers who experience economic or health shocks around the time of job separation. The most recent cohort of older workers more often cashed out pension balances and more frequently used the balances for spending or to pay off debt. This is likely due to job separations during or in the aftermath of the Great Recession. Long-term outcomes for those who cashed out balances are worse than for those who did not, but so were their baseline characteristics. Along with the fact that outcomes are similar across worker populations with or without access to pension cash-out, we conclude that the worse outcomes among workers who cashed out are due to shocks leading to cash-out behavior rather than to access to the cash-out option. (pages 15 - 44)
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2. Liquidity in Retirement Savings Systems: An International Comparison
DOI: 10.7208/chicago/9780226426709.003.0002
[savings;pension;retirement;defined contribution;liquidity;withdrawal;early access;penalty;consumption smoothing;cross-country comparison]
What is the socially optimal level of liquidity in a retirement savings system? Liquid retirement savings are desirable because liquidity enables agents to flexibly respond to preretirement events that raise the marginal utility of consumption. On the other hand, preretirement liquidity is undesirable when it leads to under-saving arising from, for example, planning mistakes or self-control problems. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC retirement assets overwhelmingly illiquid before age 55. This paper compares the liquidity that six developed economies have built into their employer-based defined contribution (DC) retirement savings systems. We find that all of them, with the sole exception of the United States, have made their DC systems largely illiquid before age 55. (pages 45 - 86)
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3. House Price Volatility and the Housing Ladder
DOI: 10.7208/chicago/9780226426709.003.0003
[housing;price risk;ownership;upsizing;housing ladder;family size;Britain;America]
This paper investigates the effects of spatial housing price risk on housing choices over the first half of the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, most people want to eventually own their home thereby creating an insurance demand early in life. Our contribution focuses on the importance of home ownership as a hedge against future house price risk for individuals that plan to move up the housing ladder. We use a simple theoretical model to show that people living in places with higher housing price risk should own their first home at a younger age, live in larger homes, and be less likely to refinance. These predictions are shown to hold using panel data from the United States and United Kingdom. (pages 87 - 126)
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4. What Determines End-of-Life Assets? A Retrospective View
DOI: 10.7208/chicago/9780226426709.003.0004
[financial security;saving;assets;retirement;health shocks;education]
We consider assets when individuals were last observed prior to death in the Health and Retirement Study (HRS) and then trace assets backwards to the age when they were first observed. We find that for most individuals, assets in the last year observed (LYO) were very similar to assets in the first year observed (FYO), and in particular that most of those who were last observed with very low asset levels also had low assets when first observed. We then estimate the relationship between education, changes in individual attributes such as health and family composition, and changes in assets between the first and last observations for individuals. We obtain estimates for HRS respondents who were 51 to 61 in 1992 and for AHEAD respondents who were age 70 and over in 1993. (pages 127 - 160)
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5. Understanding the Improvement in Disability-Free Life Expectancy in the US Elderly Population
DOI: 10.7208/chicago/9780226426709.003.0005
[Medicare Current Beneficiary Survey;self-reported medical events;health status questions on ADL and IADLs;National Center for Health Statistics;disability-free life expectancy;Oaxaca decomposition;pharmaceutical and surgical Interventions;major cardiovascular events and mortality;IMPACT mortality model;vision problem acuity]
Understanding how healthy lifespans are changing is essential for public policy. This paper explores changes in healthy lifespan in the U.S. over time and considers reasons for the changes. We reach three fundamental conclusions. First, we show that healthy life increased measurably in the US between 1992 and 2008. Years of healthy life expectancy at age 65 increased by 1.8 years over that time period, while disabled life expectancy fell by 0.5 years. Second, we identify the medical conditions that contribute the most to changes in healthy life expectancy. The largest improvements in healthy life expectancy come from reduced incidence and improved functioning for those with cardiovascular disease and vision problems. Together, these conditions account for 63 percent of the improvement in disability-free life expectancy. Third and more speculatively, we explore the role of medical treatments in the improvements for these two conditions. We estimate that improved medical care is likely responsible for a significant part of the cardiovascular and vision-related extension of healthy life. (pages 161 - 204)
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6. Are Black-White Mortality Rates Converging? Acute Myocardial Infarction in the United States, 1993–2010
DOI: 10.7208/chicago/9780226426709.003.0006
[racial disparities;health outcomes;acute myocardial infarction;mortality trends;Medicare]
Racial and socioeconomic disparities are pervasive in U.S. health care. Recent research on trends in disparities has often shown a reduction in the magnitude of disparities in treatments. In this paper, we consider trends in racial disparities with a focus on health outcomes for acute myocardial infarction (AMI) in the elderly population. We find an overall decline in mortality between 1999 and 2010, but it was not associated with a reduction either in mortality differentials within hospitals, nor did we observe a significant reduction in mortality disparities associated with black AMI patients being admitted to hospitals with disproportionately high risk-adjusted mortality rates for whites. While there was some hint of a reduction in racial disparities between the middle (1999–2005) and late (2006–10) period, the improvement is very modest, and additional years of data would be necessary to discern whether there was a real long-term improvement. (pages 205 - 226)
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7. Measuring Disease Prevalence in Surveys: A Comparison of Diabetes Self-reports, Biomarkers, and Linked Insurance Claims
DOI: 10.7208/chicago/9780226426709.003.0007
[diabetes prevalence;survey self-reports;biomarker data;claims data;Medicare;undiagnosed diabetes]
Reliable measures of disease prevalence are crucial for answering many empirical research questions in health economics, including the causal structures underlying the correlation between health and wealth. Much of the existing literature on the health-wealth nexus relies on survey data, for example those from the Health and Retirement Study (HRS). Such survey data typically contain self-reported measures of disease prevalence, which are known to suffer from reporting error. Two more recent developments—the collection of biomarkers and the linkage with data from administrative sources such as insurance claims—promise more reliable measures of disease prevalence. In this paper, we systematically compare these three measures of disease prevalence. This work extends an existing literature that compares survey self-reports and biomarker- based measures of disease prevalence. (pages 227 - 258)
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8. Challenges in Controlling Medicare Spending: Treating Highly Complex Patients
DOI: 10.7208/chicago/9780226426709.003.0008
[Medicare spending;risk-adjustment;high-cost patients;medical co-morbidities]
Complex patients with many comorbid conditions are among the highest-cost users of Medicare, and they constitute an important source of growth in Medicare expenditures. This paper analyzes the universe of 2009 Medicare claims to characterize the complexity of patients with multiple comorbid conditions. The analysis finds that such patients cannot be placed into a small number of clinical bins; instead, the number of different combinations of comorbid conditions is staggeringly large and there are often very few patients with any particular combination of conditions. Furthermore, Medicare expenditures on patients grow non-linearly with the number of comorbid conditions afflicting patients. The results have important implications for existing risk adjustment methods used by Medicare, which do not sufficiently account for the way interactions among comorbid conditions tend to increase costs. Finally, the results suggest that disease management and care coordination programs will face a difficult challenge in coping with the heterogeneity of patient health conditions. (pages 259 - 284)
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9. Movies, Margins, and Marketing: Encouraging the Adoption of Iron-Fortified Salt
DOI: 10.7208/chicago/9780226426709.003.0009
[health behavior;nutrition;economic development;marketing;microeconomic analyses]
A set of randomized experiments shed light on how markets and information influence household decisions to adopt nutritional innovations. Of 400 Indian villages, we randomly assigned half to an intervention where all shopkeepers were offered the option to sell a new salt, fortified with both iron and iodine (and not just iodine) at 50% discount. Within treatment villages, we conducted additional interventions: an increase in retailer margin (for one or several shopkeepers), the screening of an “edutainment” movie on the benefits of double-fortified salt, a flyer informing households of the product’s availability, and free distribution to a subset of households. We find that two interventions—showing the short film and offering an incentive to all shopkeepers—significantly increased usage: both by 5.5 percentage points, or over 50%, over take up without intervention, three years after launch. For comparison, only about half of households given the salt for free actually consumed it. (pages 285 - 306)
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10. Suicide, Age, and Wellbeing: An Empirical Investigation
DOI: 10.7208/chicago/9780226426709.003.0010
[suicide;pain;self-reported wellbeing;age patterns;Gallup Healthways Wellbeing Index;Gallup World Poll]
Suicide rates, life evaluation, and measures of affect are all plausible measures of the mental health and wellbeing of populations. Yet in the settings we examine, correlations between suicide and measured wellbeing are at best inconsistent. Differences in suicides between men and women, between Hispanics, blacks, and whites, between age groups for men, between countries or US states, between calendar years, and between days of the week, do not match differences in life evaluation. By contrast, reports of physical pain are strongly predictive of suicide in many contexts. The prevalence of pain is increasing among middle-aged Americans, and is accompanied by a substantial increase in suicides and deaths from drug and alcohol poisoning. Our measure of pain is now highest in middle age—when life evaluation and positive affect are at a minimum. In the absence of the pain epidemic, suicide and life evaluation are likely unrelated, leaving unresolved whether either one is a useful overall measure of population wellbeing. (pages 307 - 338)
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11. Does Retirement Make You Happy? A Simultaneous Equations Approach
DOI: 10.7208/chicago/9780226426709.003.0011
[pension reform;well-being;financial consequences of retirement;depressive symptoms;life satisfaction]
Continued improvements in life expectancy and fiscal insolvency of public pensions have led to increased pension entitlement ages in several countries, but its consequences for subjective well-being are largely unknown. Financial consequences of retirement complicate the estimation of effects of retirement on well-being as financial circumstances may influence well-being, so the effects of retirement may be confounded by income changes. Also, unobservable determinants of income are probably related with unobservable determinants of well-being, making income possibly endogenous if used as control in well-being regressions. To address these issues, we estimate a simultaneous model of retirement, income, and subjective well-being while accounting for time effects and unobserved individual effects. Public pension arrangements (replacement rates, eligibility rules for early and full retirement) serve as instrumental variables. We use data from HRS and SHARE from 2004 to 2010. We find that depressive symptoms are negatively related to retirement while life satisfaction is positively related. Remarkably, income does not seem to affect depression or life satisfaction. This contrasts with correlations in the raw data showing significant relations between income and depression and life satisfaction. This suggests that accounting for the endogeneity of income in equations explaining depression or life satisfaction is important. (pages 339 - 376)
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Contributors
Author Index
Subject Index
