nep-age New Economics Papers
on Economics of Ageing
Issue of 2024‒03‒25
thirteen papers chosen by
Claudia Villosio, LABORatorio R. Revelli

  1. How Redistributive Are Public Health Care Schemes? Evidence from Medicare and Medicaid in Old Age By Karolos Arapakis; Eric French; John Bailey Jones; Jeremy McCauley
  2. Healthcare Quality and Dementia Risk By Aravena, José M.; Chen, Xi; Levy, Becca R.
  3. Long Term Care Risk for Couples and Singles By Elena Capatina; Gary Hansen; Minchung Hsu
  4. Pension Liquidity Risk By Kristy Jansen; Sven Klingler; Angelo Ranaldo; Patty Duijm
  5. The social security pension system of north Cyprus: analysis of deficits and inequities with proposals for sustainability and fairness By Hasan Ulas Altiok; Amin Sokhanvar; Glenn P. Jenkins
  6. Explanations for the Decline in Spending at Older Ages By Susann Rohwedder; Michael D. Hurd; Péter Hudomiet
  7. Understanding Racial Disparities in Financial Preparedness for Retirement By Junjie Guo; Ananth Seshadri
  8. The Distributional Implications of Pension Benefit Indexation By Torben M. Andersen; Cecilie Marie Løchte Jørgensen
  9. The Redesigned Social Security Statement’s Short-Term Impacts on Near Retirees By Philip Armour; Katherine Carman; Mandlenkosi Dube
  10. Genetic Risk for Alzheimer’s Disease and Related Dementias: Cognition, Economic Behavior, and Clinically Actionable Information By Yeongmi Jeong; Nicholas W. Papageorge; Meghan Skira; Kevin Thom
  11. La mauvaise perception des risques de longévité et de dépendance ne suffit pas à expliquer la faiblesse du marché de l'assurance dépendance (au Canada) By M Martin Boyer; Philippe de Donder; Claude Fluet; Pierre-Carl Michaud; Marie- Louise Leroux
  12. Baumol's Cost Disease in Acute vs. Long-term Care - Do the Differences Loom Large? By Kaan Celebi; Jochen Hartwig; Anna Pauliina Sandqvist
  13. Demographic aging and long-run economic growth in Germany By Ochsner, Christian; Other, Lars; Thiel, Esther; Zuber, Christopher

  1. By: Karolos Arapakis (University College London); Eric French (University College London and Institute for Fiscal Studies); John Bailey Jones (Federal Reserve Bank of Richmond); Jeremy McCauley (University of Bristol)
    Abstract: Most health care for the U.S. population 65 and older is publicly provided through Medicare and Medicaid. Despite the massive expenditures of these systems, little is known about how redistributive they are. Using data from the Health and Retirement Study matched to administrative Medicare, Medicaid, and Social Security earnings records, we estimate the distribution of lifetime Medicare and Medicaid benefits received and the distribution of lifetime taxes paid to finance these benefits. For the cohort who turned 65 between 1999 and 2004, we find that benefits are greater among those with high income, in large part because they live longer. Nonetheless, high-income people pay more in the way of taxes. Middle-income households gain the most from these programs as these people live long yet pay modest taxes. All income groups gain from these programs: This cohort’s lifetime tax contribution did not cover the medical benefits it received. This deficit is paid by younger cohorts.
    Date: 2022–06
  2. By: Aravena, José M.; Chen, Xi; Levy, Becca R.
    Abstract: Low healthcare quality has been found to predict the development of several illnesses in older adults, while the evidence on dementia is still lacking. This study assesses whether and to what extent experiencing low healthcare quality can be associated with developing dementia in people 60-years-old and greater. Participants in the Health and Retirement Study (HRS), without dementia and 60-years-old and greater at baseline, were followed 2006 through 2019. Experiencing low healthcare quality was assessed at baseline through healthcare discrimination and dissatisfaction with healthcare services. The outcome, development of new cases of dementia, was determined through physician diagnosis or a cognition score compatible with dementia (assessed by the Telephone Interview for Cognitive Status). Cox regression is used to estimate the hazard ratio (HR) of dementia, adjusting for participants' demographic, health, and socioeconomic factors. Experiencing low healthcare quality is associated with increased dementia risk over 12 years (unadjusted HR: 1.68, 95%CI: 1.27 - 2.21, p-value
    Keywords: Dementia, Patient Satisfaction, Perceived Discrimination, Social Determinants of Health, Healthcare Quality, Alzheimer's Disease
    JEL: I11 I18 J14 J15 J18
    Date: 2024
  3. By: Elena Capatina; Gary Hansen; Minchung Hsu
    Abstract: This paper compares the impact of long term care (LTC) risk on single and married households and studies the roles played by informal care (IC), consumption sharing within households, and Medicaid in insuring this risk. We develop a life-cycle model where individuals face survival and health risk, including the possibility of becoming highly disabled and needing LTC. Households are heterogeneous in various important dimensions including education, productivity, and the age difference between spouses. Health evolves stochastically. Agents make consumption-savings decisions in a framework featuring an LTC state-dependent utility function. We find that household expenditures increase significantly when LTC becomes necessary, but married individuals are well insured against LTC risk due to IC. However, they still hold considerable assets due to the concern for the spouse who might become a widow/widower and can expect much higher LTC costs. IC significantly reduces precautionary savings for middle and high income groups, but interestingly, it encourages asset accumulation among low income groups because it reduces the probability of means-tested Medicaid LTC.
    JEL: D16 E21 H31 J14
    Date: 2024–03
  4. By: Kristy Jansen (University of Southern California and De Nederlandsche Bank); Sven Klingler (BI Norwegian Business School); Angelo Ranaldo (University of St. Gallen; Swiss Finance Institute); Patty Duijm (De Nederlandsche Bank)
    Abstract: Pension funds rely on interest rate swaps to hedge the interest rate risk arising from their liabilities. Analyzing unique data on Dutch pension funds, we show that this hedging behavior exposes pension funds to liquidity risk due to margin calls, which can be as large as 15% of their total assets. Our analysis uncovers three key findings: (i) pension funds with tighter regulatory constraints use swaps more aggressively; (ii) in response to rising interest rates, triggering margin calls, pension funds predominantly sell safe and short-term government bonds; (iii) we demonstrate that this procyclical selling adversely affects the prices of these bonds.
    Keywords: Pension funds, fixed income, interest rate swaps, liability hedging, liquidity risk, margin calls, price impact
    JEL: E43 G12 G18
    Date: 2024–02
  5. By: Hasan Ulas Altiok (Department of Banking and Finance Eastern Mediterranean University, North Cyprus); Amin Sokhanvar (Cambridge Resources International (Canada), Kingston, Ontario, Canada.); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Ontario, Canada and Cyprus International University, Nicosia, North Cyprus.)
    Abstract: The Social Security Pension System of North Cyprus is experiencing a pronounced deficit, with a pattern of structural imbalances that necessitate immediate policy attention. Our analysis reveals a consistent deficit averaging 50% of social security pensions paid, or 3.2% of gross domestic product (GDP). Given the aspirations of North Cyprus to join the European Union, correction of these imbalances at an early date is imperative. Women, because of their longer expected lifespan, receive a 5% higher subsidy than men earning equal incomes through their working lives. However, lower-income individuals (often women) are at a critical disadvantage in terms of the monetary value of the subsidy received. The system's dependence on general budget financing points toward a non-sustainable future. At the same time the Provident Fund, to which all employees are required to contribute 8% of their declared incomes, is a systematic mechanism for reducing workers' savings in an inflationary environment. Workers contributing to the Provident Fund over the past 13 years will receive back from the government only between 40% and 49% of the value of what they could have cumulated from a 3% or 0% real return alternative investment that received the same tax treatment. This article crystallizes the critical findings and suggests policy recommendations for the substantial pension system reform that is necessary to ensure fiscal sustainability and equitable treatment of all income groups.
    Keywords: Pension System Deficit, Fiscal Sustainability, North Cyprus Social Security, Pension Reform, Contribution Rates, Provident Fund Contributions
    JEL: H24 H26
    Date: 2024–02–09
  6. By: Susann Rohwedder (RAND); Michael D. Hurd (RAND); Péter Hudomiet (RAND)
    Abstract: We use new data from the 2019 wave of the Consumption and Activities Mail Survey to help interpret the observed decline in spending as individuals age. At one extreme, forward-looking individuals optimally chose the decline; at the other, myopic individuals overspent and were forced to reduce spending because they had run out of wealth. Which interpretation is correct has important implications for the measurement of economic preparation for retirement. According to their own assessments, the fraction of respondents feeling financially constrained is lower at advanced ages, and the fraction satisfied with their economic situation is considerably higher at older ages than at ages near retirement. An important mechanism reconciling the evidence of reduced spending and greater economic satisfaction at older ages may be that individuals’ enjoyment of several activities declines with worsening health, widowing, and increasing age, leading to a lessening desire to spend on them. We find strong support for this hypothesis. Nonetheless, close to 20% of those older than 80 report not being satisfied with their financial situation, pointing to heterogeneity in economic security.
    Date: 2022–06
  7. By: Junjie Guo (University of Wisconsin-Madison); Ananth Seshadri (University of Wisconsin-Madison)
    Abstract: We estimate a model of labor supply and savings over the life cycle where key parameters — including the interest rate, the degree of risk aversion and the fixed cost of working, and the stochastic processes of health, mortality, and wages — are all allowed to vary by race. We find the Black-white gap in the labor force participation rate at age 62 is mostly due to the racial differences in health and the fixed cost of participation, and the Black-white gap in wealth at age 62 is mostly due to the racial wage gap. In addition to the racial differences in preferences and skills, labor market discrimination against Blacks could also contribute to their higher fixed cost of participation and lower wages. This suggests that reducing the discrimination faced by Blacks in the labor market could significantly reduce the racial disparities in retirement preparedness.
    Date: 2022–09
  8. By: Torben M. Andersen; Cecilie Marie Løchte Jørgensen
    Abstract: Socio-economic differences in longevity have fuelled a debate whether pension systems have a regressive bias favouring groups with a high life expectancy. We show that the distributional implications of such pooling depend critically on the benefit profile across age/time, which in turn is determined by how benefits are indexed to prices and wages. Choosing indexation scheme involves a choice between a low initial benefit with an increasing profile and a high initial benefit with a flat/decreasing profile, where the former benefits groups with a high life expectancy, and vice versa. We analyse how indexation affects the trade-off between insurance and distribution when groups with different mortality are separated or pooled, and the optimal benefit profile under both standard preferences and temporal risk aversion wrt. the length of life.
    Keywords: annuities, differential mortality, distribution, indexation
    JEL: D14 G22 H55 J18
    Date: 2024
  9. By: Philip Armour (RAND); Katherine Carman (RAND); Mandlenkosi Dube (RAND)
    Abstract: In October 2021, the Social Security Administration (SSA) implemented a redesigned Social Security Statement for workers scheduled to be sent a paper Statement or checking their my Social Security online accounts. The new statement is half the length of the prior Statement, and instead of solely numerical estimations of future benefits, the redesigned Statement includes a graphical depiction of how claiming later affects monthly benefits. This redesign holds the promise of effectively presenting both general and personalized Social Security knowledge, even more so than the prior Statement, which was shown to increase knowledge, change expectations, and increase disability claiming rates (Smith and Couch 2014b, Armour 2018, Armour 2020). In this study, we field a new survey module in the long-running Understanding America Study, where approximately half of respondents were exposed to the redesigned Statement due to their birth month, and the other half were sent the prior design. We elicit preferences over the features of the redesigned Statement, as well as how the redesigned Statement affected knowledge, planned claiming and retirement ages, and actual claiming behavior. Respondents strongly preferred the new format. This format changed planned claiming and retirement ages, and it delayed actual benefit claiming. Effects were strongest among those with low levels of Social Security knowledge prior to receipt. Our findings add to a growing literature on how the Social Security Statement can be an effective channel for Social Security’s communications about future benefits.
    Date: 2022–09
  10. By: Yeongmi Jeong; Nicholas W. Papageorge; Meghan Skira; Kevin Thom
    Abstract: Genetic factors play a major role in the development of Alzheimer’s disease and related dementias (ADRD). Observable genetic factors could impact household planning and medical care if they contain actionable information, meaning that they i) are associated with significant harms, ii) reflect risks for which individuals are not already prepared, and iii) are informative above and beyond current knowledge or expectations. We examine these properties for existing genetic measures related to ADRD in the Health and Retirement Study (HRS). We replicate existing relationships between genetic factors and cognitive health. We also show that higher genetic risk is associated with worse economic outcomes on several dimensions including work, income, and wealth. Surprisingly, individuals at higher risk are less likely to engage in planning activities that could mitigate the consequences of cognitive decline (e.g. assigning durable power of attorney). In predictive exercises, existing genetic indices provide clinically valuable and policy-relevant information on the development of severe adverse cognitive outcomes in the future.
    JEL: D14 G51 G52 I12 I14 J14 J22 J26
    Date: 2024–03
  11. By: M Martin Boyer (HEC Montréal - HEC Montréal); Philippe de Donder (TSE-R - TSE-R Toulouse School of Economics – Recherche - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Claude Fluet (ULaval - Université Laval [Québec]); Pierre-Carl Michaud (HEC Montréal - HEC Montréal); Marie- Louise Leroux
    Abstract: This article studies the some of the reasons underlying the under-provision of LTC insurance in Québec and Ontario. Using 2016 survey data, we demonstrate that misperception biases regarding demographic risks (of mortality and of dependency) cannot alone explain the low demand for this insurance product. Even if individual perceptions of these risks are heterogenous, individuals tend on average to over-estimate their survival probability and the probability of entering a LTC home, which should lead to over-insurance rather than to under-insurance for LTC. We show instead that the most probable reason for the under-provision of LTC insurance is that individuals do not know this financial product. Hence, if policy makers were to foster the purchase of LTC insurance, they should run advertising campaigns to inform the public about these products. Another interesting policy could be to develop bundled insurance products.
    Abstract: Cet article étudie certaines des raisons qui pourraient expliquer la faiblesse du marché de l'assurance dépendance au Québec et en Ontario. En utilisant des données d'enquête de 2016, nous expliquons que les biais de perception des risques démographiques (probabilité de survie et de dépendance) ne peuvent à eux seuls expliquer la faible demande pour un tel produit d'assurance. En particulier, même si les perceptions individuelles sont assez hétérogènes, les individus ont tendance en moyenne à surestimer leur probabilité de survie ainsi que celle d'entrer en maison de retraite, menant plutôt à un surinvestissement en assurance dépendance qu'à un sous investissement. Nous avançons que la raison la plus probable de la faiblesse de la demande pour l'assurance dépendance provient du fait que les individus ne connaissent pas ce type de produit financier. Ainsi, si les pouvoirs publics souhaitent encourager l'achat d'assurance dépendance, nous préconisons des campagnes de publicité visant à informer les assurés potentiels de l'existence de tels produits. Une piste additionnelle consisterait aussi à développer des produits d'assurance couplés.
    Keywords: I13, biais de perception, probabilité de survie, probabilité de perte d'autonomie, demande d'assurance soins de longue durée
    Date: 2023
  12. By: Kaan Celebi (Chemnitz University of Technology); Jochen Hartwig (Chemnitz University of Technology, KOF Swiss Economic Institute, ETH Zurich, Hans Böckler Stiftung, Forum for Macroeconomics and Macroeconomic Policies, Düsseldorf); Anna Pauliina Sandqvist (Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich)
    Abstract: Baumol's (1967) model of ‘unbalanced growth’ yields a supply-side explanation for the ‘cost explosion’ in health care. Applying a testing strategy suggested by Hartwig (2008), a sprawling literature affirms that the ‘Baumol effect’ has both a statistically and economically significant impact on health care expenditure growth. Skeptics maintain, however, that the proliferation of hi-tech medicine in acute care is clearly at odds with the assumption underlying Baumol's model that productivity-enhancing machinery and equipment is only installed in the ‘progressive’ (i.e. manufacturing) sector of the economy. They argue that Baumol's cost disease may affect long-term care, but not acute care. Our aim in this paper is to test whether Baumol's cost disease affects long-term care and acute care differently. Our testing strategy consists in combining Extreme Bounds Analysis (EBA) with an outlier-robust MM estimator. Using panel data for 23 OECD countries, our results provide robust and statistically significant evidence that expenditures on both acute care and long-term care are driven by Baumol's cost disease, even though the effect on long-term care expenditures is more pronounced.
    Keywords: Health care expenditure, Baumol's cost disease, Extreme Bounds Analysis, MM estimator, OECD panel
    JEL: C12 C23 I10
    Date: 2024–02
  13. By: Ochsner, Christian; Other, Lars; Thiel, Esther; Zuber, Christopher
    Abstract: We study the long-run interaction between Germany's economic growth trajectory and demographic aging. Using a comprehensive dataset, we leverage the classical production function approach to estimate potential output growth between 1970 and 2070. We account for the inherent uncertainty in our projections using Bayesian estimation techniques. Overall, Germany's potential output growth up to 2070 will be low if current economic trends persist. In particular, the diminishing labor volume, coupled with sluggish total factor productivity and investment trend growth, contributes to the decline. Our results highlight the significance of demographic factors in shaping economic trajectories and the critical need for policy interventions to mitigate adverse effects. Our analysis can serve as valuable inputs for formulating long-term economic policies.
    Keywords: demographic aging, production function, potential output, Germany, long-run forecast, economic growth
    JEL: E13 E17 E23
    Date: 2024

This nep-age issue is ©2024 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.