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Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts

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  • John R. Moran
  • Kosali Ilayperuma Simon

Abstract

We use exogenous variation in Social Security payments created by the Social Security benefits notch to estimate how retirees' use of prescription medications responds to changes in their incomes. In contrast to estimates obtained using ordinary least squares, instrumental variables estimates based on the notch suggest that lower-income retirees exhibit considerable income sensitivity in their use of prescription drugs. Our estimates are potentially useful for thinking about the health care usage implications of any changes in transfer payments to the elderly that may occur in the future, and for evaluating the benefits of the recently enacted Medicare prescription drug benefit.

Suggested Citation

  • John R. Moran & Kosali Ilayperuma Simon, 2005. "Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts," NBER Working Papers 11068, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11068
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    References listed on IDEAS

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    1. Gary V. Engelhardt & Jonathan Gruber & Cynthia D. Perry, 2002. "Social Security and Elderly Living Arrangements," NBER Working Papers 8911, National Bureau of Economic Research, Inc.
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    3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    4. Stephen E. Snyder & William N. Evans, 2002. "The Impact of Income on Mortality: Evidence from the Social Security Notch," NBER Working Papers 9197, National Bureau of Economic Research, Inc.
    5. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
    6. Victor R. Fuchs, 1982. "Time Preference and Health: An Exploratory Study," NBER Chapters,in: Economic Aspects of Health, pages 93-120 National Bureau of Economic Research, Inc.
    7. Krueger, Alan B & Pischke, Jorn-Steffen, 1992. "The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 412-437, October.
    8. Gary V. Engelhardt & Jonathan Gruber, 2004. "Social Security and the Evolution of Elderly Poverty," NBER Working Papers 10466, National Bureau of Economic Research, Inc.
    9. John Mullahy, 1997. "Instrumental-Variable Estimation Of Count Data Models: Applications To Models Of Cigarette Smoking Behavior," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 586-593, November.
    10. repec:reg:rpubli:282 is not listed on IDEAS
    11. Claudia Goldin, 1999. "A Brief History of Education in the United States," NBER Historical Working Papers 0119, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Goda, Gopi Shah & Golberstein, Ezra & Grabowski, David C., 2011. "Income and the utilization of long-term care services: Evidence from the Social Security benefit notch," Journal of Health Economics, Elsevier, vol. 30(4), pages 719-729, July.
    2. Renate Hartwig & Michael Grimm, 2009. "An Assessment of the Effects of the 2002 Food Crisis on Children’s Health in Malawi," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 19, Courant Research Centre PEG.
    3. Holst, Jens, 2008. "Kostenbeteiligung für Patienten - Reformansatz ohne Evidenz! Theoretische Betrachtungen und empirische Befunde aus Industrieländern," Discussion Papers, Research Group Public Health SP I 2008-305, WZB Berlin Social Science Center.
    4. John Cawley & John Moran & Kosali Simon, 2010. "The impact of income on the weight of elderly Americans," Health Economics, John Wiley & Sons, Ltd., vol. 19(8), pages 979-993, August.
    5. Joachim Freyberger & Joel L. Horowitz, 2013. "Identification and shape restrictions in nonparametric instrumental variables estimation," CeMMAP working papers CWP31/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. Holst, Jens, 2010. "Patient cost sharing: Reforms without evidence. Theoretical considerations and empirical findings from industrialized countries," Discussion Papers, Research Group Public Health SP I 2010-303, WZB Berlin Social Science Center.
    7. Joachim Freyberger & Joel L. Horowitz, 2012. "Identification and shape restrictions in nonparametric instrumental variables estimation," CeMMAP working papers CWP15/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    8. Engelhardt, Gary V., 2008. "Social security and elderly homeownership," Journal of Urban Economics, Elsevier, vol. 63(1), pages 280-305, January.
    9. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters,in: Research Findings in the Economics of Aging, pages 413-481 National Bureau of Economic Research, Inc.
    10. Vere, James P., 2011. "Social Security and elderly labor supply: Evidence from the Health and Retirement Study," Labour Economics, Elsevier, vol. 18(5), pages 676-686, October.

    More about this item

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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