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SOCIAL SCIENCE RESEARCH NETWORK
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 7, No. 22: August 11, 2006
Editors: PAMELA J. PERUN
Urban Institute
PAMELA@PLANETNOW.COM
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Topic of This Issue:
Health and Disability
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T A B L E O F C O N T E N T S
"Balancing the Goals of Health Care Provision"
MARTIN S. FELDSTEIN
National Bureau of Economic Research (NBER), Harvard
University
"Savings Needed to Fund Health Insurance and Health Care Expenses
in Retirement"
PAUL FRONSTIN
Employee Benefit Research Institute (EBRI)
"How Household Portfolios Evolve After Retirement: The Effect of
Aging and Health Shocks"
COURTNEY COILE
Wellesley College - Department of Economics, National
Bureau of Economic Research (NBER)
KEVIN MILLIGAN
University of British Columbia - Department of
Economics, National Bureau of Economic Research (NBER)
"Disability and Work: The Role of Health Shocks and Childhood
Circumstances"
BAS VAN DER KLAAUW
Free University of Amsterdam - Department of Economics,
Centre for Economic Policy Research (CEPR), Institute
for the Study of Labor (IZA)
MAARTEN LINDEBOOM
Free University of Amsterdam - Department of Economics,
Tinbergen Institute Amsterdam, Institute for the Study
of Labor (IZA)
ANA LLENA NOZAL
Free University of Amsterdam
"The Growth in the Social Security Disability Rolls: A Fiscal
Crisis Unfolding"
DAVID H. AUTOR
Massachusetts Institute of Technology (MIT) - Department
of Economics, National Bureau of Economic Research
(NBER)
MARK G. DUGGAN
University of Maryland - Department of Economics,
National Bureau of Economic Research (NBER)
"Health Savings Accounts: Do the Critics have a Point?"
MICHAEL F. CANNON
Cato Institute
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"Balancing the Goals of Health Care Provision"
NBER Working Paper No. W12279
Contact: MARTIN S. FELDSTEIN
National Bureau of Economic Research (NBER),
Harvard University
Email: msfeldst@nber.org
Auth-Page: http://ssrn.com/author=20249
Full Text: http://ssrn.com/abstract=906757
ABSTRACT: A desirable system for providing and financing health
care would achieve three goals: (1) preventing the deprivation of
care because of a patient's inability to pay; (2) avoiding
wasteful spending; and (3) allowing care to reflect the different
tastes of individual patients. Although it is not possible to
realize fully all three of these goals, they can condition and
inform the design of a good system for financing health care.
This paper discusses the application of these goals in more
detail and use them to consider a reform of the system of Health
Savings Accounts that was enacted as part of the 2003 Medicare
legislation and, separately, the challenge posed by the very
expensive treatments for rare diseases that are becoming more
common.
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"Savings Needed to Fund Health Insurance and Health Care Expenses
in Retirement"
EBRI Issue Brief, No. 295, July 2006
Contact: PAUL FRONSTIN
Employee Benefit Research Institute (EBRI)
Email: FRONSTIN@EBRI.ORG
Auth-Page: http://ssrn.com/author=255140
Full Text: http://ssrn.com/abstract=920626
ABSTRACT: This paper examines the cost of health insurance and
health care expenses in retirement. It examines recent trends in
private- and public-sector retiree health benefits and the impact
of these trends on current and future retirees. It also presents
options that retirees currently have to supplement the Medicare
program, and provides estimates of how much those options will
cost current and future retirees.
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"How Household Portfolios Evolve After Retirement: The Effect of
Aging and Health Shocks"
Contact: COURTNEY COILE
Wellesley College - Department of Economics,
National Bureau of Economic Research (NBER)
Email: CCOILE@WELLESLEY.EDU
Auth-Page: http://ssrn.com/author=198588
Co-Author: KEVIN MILLIGAN
University of British Columbia - Department of
Economics, National Bureau of Economic Research
(NBER)
Email: kevin.milligan@ubc.ca
Auth-Page: http://ssrn.com/author=294166
Full Text: http://ssrn.com/abstract=916582
ABSTRACT: In this paper, we study how the portfolios of elderly
U.S. households evolve after retirement, using data from the
Health and Retirement Study (HRS). In particular, we investigate
the influence of aging and health shocks on a household's
ownership of various assets and on the dollar value and share of
total assets held in each asset class. We find that households
decrease their ownership of most asset classes as they age, with
the strongest evidence for principal residences and vehicles,
while increasing the share of assets held in bank accounts and
CDs. Consistent with prior studies, we find that the death of a
spouse is a strong predictor of selling the principal residence.
However, we find that widowhood also leads households to sell
vehicles, businesses, and real estate and to put money into bank
accounts and CDs, and further that other health shocks have very
similar impacts. Finally, we explore why health shocks affect
asset holdings and find that the effect of a shock is greatly
magnified when households have physical or mental impairments.
This suggests that factors other than standard risk and return
considerations may weigh heavily in many older households'
portfolio decisions.
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"Disability and Work: The Role of Health Shocks and Childhood
Circumstances"
IZA Discussion Paper No. 2096
Contact: BAS VAN DER KLAAUW
Free University of Amsterdam - Department of
Economics, Centre for Economic Policy Research
(CEPR), Institute for the Study of Labor (IZA)
Email: klaauw@tinbergen.nl
Auth-Page: http://ssrn.com/author=120550
Co-Author: MAARTEN LINDEBOOM
Free University of Amsterdam - Department of
Economics, Tinbergen Institute Amsterdam, Institute
for the Study of Labor (IZA)
Email: mlindeboom@econ.vu.nl
Auth-Page: http://ssrn.com/author=289756
Co-Author: ANA LLENA NOZAL
Free University of Amsterdam
Email: anozal@feweb.vu.nl
Auth-Page: http://ssrn.com/author=614982
Full Text: http://ssrn.com/abstract=900358
ABSTRACT: This paper focuses on the relation between the onset of
disability and employment outcomes. We develop an event history
model that includes unscheduled hospitalizations as a measure for
unanticipated health shocks and estimate the model on data from
the British National Child Development Study (NCDS). We show that
such health shocks increase the likelihood of an onset of a
disability by around 138%. However, health shocks are relatively
rare events and therefore the larger part of observed disability
rates result from gradual deteriorations in health. We find no
direct effect of health shocks on employment outcomes. Using the
health shock as an instrumental variable shows that the onset of
a disability at age 25 causally reduces the employment rate at
age 40 with around 21 percentage points. Our results show that
early childhood conditions are important in explaining adult
health and socioeconomic outcomes. Those who have experienced bad
conditions during early childhood have higher rates of health
deterioration during adulthood, are more likely to become
non-employed and suffer from longer spells of non-employment
during the course of life.
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"The Growth in the Social Security Disability Rolls: A Fiscal
Crisis Unfolding"
MIT Department of Economics Working Paper No. 06-23
Contact: DAVID H. AUTOR
Massachusetts Institute of Technology (MIT) -
Department of Economics, National Bureau of
Economic Research (NBER)
Email: dautor@mit.edu
Auth-Page: http://ssrn.com/author=217852
Co-Author: MARK G. DUGGAN
University of Maryland - Department of Economics,
National Bureau of Economic Research (NBER)
Email: duggan@econ.bsos.umd.edu
Auth-Page: http://ssrn.com/author=236685
Full Text: http://ssrn.com/abstract=921123
ABSTRACT: More than 80 percent of nonelderly U.S. adults are
insured against the risk of disabling physical or mental illness
by Social Security Disability Insurance (SSDI). This article
evaluates the causes of the extraordinary growth in SSDI
enrollment, considers its fiscal ramifications, and discusses
potential policy responses. While aggregate population health has
improved by most measures in recent decades, the rate of SSDI
receipt among nonelderly adults has nearly doubled since 1984. We
project that SSDI receipt will rise by an additional seventy
percent before reaching a steady state rate of approximately 6.5
percent of adults between the ages of 25 and 64, with cash
benefit payments exceeding $150 billion annually (excluding
Medicare).
We trace the rapid expansion of SSDI to: (1) congressional
reforms to disability screening in 1984 that enabled workers with
low mortality disorders such as back pain, arthritis and mental
illness to more readily qualify for benefits; (2) a rise in the
after-tax DI income replacement rate, which strengthened the
incentives for workers to seek benefits; (3) and a rapid increase
in female labor force participation that expanded the pool of
insured workers. Notably, the aging of the baby boom generation
has contributed little to the growth of SSDI to date.
Among several avenues for reducing SSDI growth, we suggest that
the most promising are revamping the disability appeals process -
in which the Social Security Administration currently loses
nearly three-quarters of all appeals - and reducing the
attractiveness of DI benefits for work-capable disabled
individuals by providing additional access to public health
insurance. By contrast, previous efforts to reduce the SSDI rolls
by discontinuing benefits or by providing stronger return-to-work
incentives have proved remarkably unsuccessful.
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"Health Savings Accounts: Do the Critics have a Point?"
Contact: MICHAEL F. CANNON
Cato Institute
Email: mcannon@cato.org
Auth-Page: http://ssrn.com/author=374900
Full Text: http://ssrn.com/abstract=906095
ABSTRACT: Health savings accounts, or HSAs, are a new health
insurance option that became available in 2004. HSAs couple a
tax-preferred savings account (the HSA) with high-deductible
health insurance. Enrollees or their employers, or both, make
tax-free contributions to the HSA. Enrollees use the funds in
their HSAs to purchase medical care until they reach their
deductibles. At that point, health insurance begins paying part
or all of enrollees' medical expenses.
HSAs reduce government's influence over consumers' medical
decisions by reducing the price distortions created by the
federal tax code. However, HSAs as they exist today do not
eliminate those distortions. Current HSA law restricts consumers'
health insurance choices, makes it difficult for the chronically
ill to save for their future medical needs, and discourages cost
sharing above the health insurance deductible.
To address some of those shortcomings, President Bush proposes to
reduce the price distortions further, through higher HSA
contribution limits and tax credits for individuals who
contribute to their HSAs or who purchase their own HSA-compatible
insurance. Although those steps would be helpful, HSAs should be
expanded further still to give individuals full ownership of and
control over all their health care dollars.
Unfortunately, HSAs (and proposals to expand them) have become
politicized. Critics contend that HSAs benefit only the healthy
and the wealthy and that HSAs are ineffective or even harmful. In
most cases, criticisms of HSAs fall flat. In some cases, the
critics do have a point. However, the failures they identify stem
not from HSAs or proposals to expand them but from the problems
that HSAs are meant to correct. Expanding HSAs would help to
correct those problems faster.