Health andRetirement Study

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Health and Ageing-Lifetime Research:Longitudinal Studies from Home and Away

Whitlam Institute Forum30 September, 2003

Robert J. Willis

University of Michigan

Health andRetirement Study

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1. Demographic Trends in Australia Similar to those in U.S. and Europe

• World wide trends of declining fertility, increasing length of life imply– Slower rate of population growth – Population aging

• Intergenerational transfers used to support economic welfare and health care for elderly– Role of family– Public sector taxes and transfers

• Changing age structure makes existing welfare state programs infeasible in the long run

• Search for sustainable policies

Health andRetirement Study

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Economic Implications of Slower Population Growth: The Good News

• Slower population growth provides potential for higher per capita economic welfare– Given rate of saving creates more physical capital per person– Given rate of investment in education creates workers with

more human capital per person

• Implies feasible lifetime income and consumption is higher when population growth is slower

Health andRetirement Study

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Economic Implications of Slower Population Growth: The Bad News

• Sustainability of social welfare programs financed by tax and transfer schemes is threatened by population aging– Social security/Medicare represent transfers from younger to

older generations– Population aging implies that a given rate of taxation of

workers who maintain a given age schedule of labor supply will not produce revenues sufficient to maintain a given level of transfers to retired elderly

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Effects of Increasing Expectation of Life

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Social Security Taxes and Benefits

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Intergenerational Report Priorities: Fiscal Sustainablity of Health Care Depends on

Savings and Employment

1. Balanced budget, government debt low2. Efficient and effective medical health system,

complemented by widespread participation in private health insurance

3. Containing growth in the Pharmaceutical Benefit Scheme (PBS)

4. Affordable and effective residential aged care system5. Preserving a well-targeted safety net

6. Encouraging mature age employment7. Encouraging private saving for retirement

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2. Consequences of Social Welfare and Retirement Policy In Developed Countries for Employment

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Trends in Labor Force Attachment of Older Men

Source: J. Gruber and D. Wise, Social Security Programs and Retirement Around the World, U. Chicago Press, 1999.

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Retirement Policy Shapes Retirement Behavior

Source: J. Gruber and D. Wise, Social Security and Retirement Around the World (NBER, 2000)

Percent Penalty for Continued Work

Per

cen

t E

arly

Ret

irem

ent

20 40 60 80 100

30

40

50

60

70

USSweden

CanadaSpain

Germany

UK

FranceHolland

Belgium

Italy

3. Correlation between Health and Wealth: What Causes What?

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Excel

lent

V Good

GoodFai

r

Poor

Poor

Fair

Good

V Good

Excellent

0

100

200

300

400

500

Net

Wo

rth

(in

Th

ou

san

ds)

Wife's Health

Husband's Health

Mean Net Worth by Health of Husband and Wife

Source: Robert J. Willis, “Theory confronts data: how the HRS is shaped by the economics of aging and how the economics of aging will be shaped by the HRS,” Labour Economics, Volume 6, No. 2, page 119, June, 1999.

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Causal Directions?

•Wealth Causes Health–Early life experiences–Social gradient–Access to medical care

•Health Causes Wealth–Affects long run human capital accumulation–Health shocks disrupt work/earnings–Health shocks lead to (uninsured) medical costs

•Health and Wealth Caused by Third Factor–Rate of time discount (willingness to defer satisfaction)

�More weight on future leads to more education, higher earnings, higher savings rate, better healthhabits leading to correlation between health and wealth

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New Health Problem in 1992Reduces Wealth between 1992-1996

HRS (People 51-60)

-3,620

635

-16,846

2,266

-20,000

-15,000

-10,000

-5,000

0

5,000

Wealth Medical Expenses

Th

ou

sa

nd

s o

f D

olla

rs

Mild onset

Severe onset

Source: James P. Smith. "Healthy Bodies and Thick Wallets," Journal of Economic Perspectives 1999.

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New Health Problem in 1993 Reduces Wealth from 1993 to 1995

AHEAD (people 70+)

-10,481

1,026

-12,000

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

Wealth Medical Expenses

Do

llars

Source: James P. Smith. "Healthy Bodies and Thick Wallets," Journal of Economic Perspectives 1999.

4. Challenge of Dementia in an Ageing Population

• Lower mortality

• Rapid growth of oldest old

• Lower fertility

• Increased relative number of older to younger persons

• Increased cost to taxpayers

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Rapid Growth Of Oldest Old

Source: Frank B. Hobbs with Bonnie L. Damon, 65+ in the United States, U.S. Department of Commerce -- Economics and Statistics Administration and Bureau of the Census and U.S. Department of Health and Human Services -- National Institute on Aging, page 2-8, April, 1996

Population 85 and Over: 1900-2050

0.1 0.2 0.2 0.3 0.4 0.6 0.9 1.4 2.2

18.9

34.3

67

8.8

13.8

0

5

10

15

20

1900 1920 1940 1960 1980 2000 2020 2040

(in

mill

ion

s)

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Severe Cognitive Limitation by Age and Gender

0%

5%

10%

15%

20%

25%

51-54 55-59 60-64 65-69 70-74 75-79 80-84 85+

Age

Pe

rce

nt

Males

Females

Total

Source: Mary Beth Ofstedal: Health and Retirement Survey 1998 (N= 13,093) Definition of severe cognitive impairment: Errors on half or more of 9 very easy items from a standard geriatric screen for mental status for self-respondents; IQCODE score of 3.9 or higher on Jorm proxy assessment.

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Informal Care: Adjusted Weekly Hours, by Severity of Cognitive Limitation

05

1015202530354045

NormalCognition

Mild Moderate Severe

Severity of Cognitive Limitation

Ho

urs

of

Car

e

Langa K, Kabeto M, Herzog AR, Chernew M, Ofstedal MB, Willis R, Wallace R, Mucha L, Straus W, Fendrick AM. “The quantity and cost of informal caregiving for the elderly with dementia: Estimates from a nationally representative sample,” Journal of General Internal Medicine 2000; 15 (Suppl. 1): 76 (abstract).

Funding for this project was provided by the Robert Wood Johnson Foundation, the Aetna Quality Care Research Fund, and Merck and Co., Inc.

Langa K, Kabeto M, Herzog AR, Chernew M, Ofstedal MB, Willis R, Wallace R, Mucha L, Straus W, Fendrick AM. “The quantity and cost of informal caregiving for the elderly with dementia: Estimates from a nationally representative sample,” Journal of General Internal Medicine 2000; 15 (Suppl. 1): 76 (abstract).

Funding for this project was provided by the Robert Wood Johnson Foundation, the Aetna Quality Care Research Fund, and Merck and Co., Inc.

5. Global Efforts to Study Economics of Ageing and Health

• Health and Retirement Study (HRS)

• English Longitudinal Study of Aging(ELSA)

• Survey on Health Aging and Retirement in Europe (SHARE)– Austria, Belgium, France, Denmark, Germany, Greece,

Italy, Netherlands, Spain, Sweden, Switzerland

• Mexican Health and Aging Study (MHAS)

What is the Value of Comparable Longitudinal Surveys in Many Nations?

• Each country can learn “what if” lessons from relationship between policies and outcomes experienced in other countries

• Argued at length in National Academy of Science, Preparing for an Aging World: The Case for Cross-National Research (2001)