Health at Older Ages: The Causes and Consequences of Declining Disability among the Elderly

By David M. Cutler; David A. Wise | Go to book overview

10
Disability Risk and the Value
of Disability Insurance

Amitabh Chandra and Andrew A. Samwick


10.1 Introduction

As successive generations of Americans have access to healthier lifestyles and more advanced medical technologies, we can expect the prevalence of work-limiting disabilities to recede. A decline in disability will have important consequences for the nature of employment at older ages and the optimal design of social insurance programs. In this chapter, we take initial steps toward understanding these consequences by measuring the disability decline in the working age population over the past two decades and assessing its implications for welfare and saving. We focus on consumers' valuation of disability insurance—either as income or as an assistive technology—to protect against the risk of permanent disablement. Because the probability of disablement is small but the loss conditional on the event is large, consumers will find it difficult to self-insure substantially against the risk of disablement through precautionary saving.

To understand changes in the probability of a work-limiting disability, we

Amitabh Chandra is an Assistant Professor of Public Policy at the Kennedy School of Gov-
ernment at Harvard University, and a Faculty Research Fellow at the National Bureau of
Economic Research. Andrew A. Samwick is a Professor of Economics and Director of the
Nelson A. Rockefeller Center at Dartmouth College, and a Research Associate at the Na-
tional Bureau of Economic Research.

We are grateful to the National Institute on Aging (grants P30 AG12810 and R01
AG19805) and the Mary Woodard Lasker Charitable Trust and Michael E. DeBakey Foun-
dation for financial support. We are grateful to Andrew Houtenville for generously providing
us with access to CPS data that are not publicly available. We thank David Cutler, Doug
Staiger, David Wise, and participants at the NBER conference, “The Decline in Disability,”
for helpful comments. Any errors are our own. Address correspondence to the authors at
Amitabh_Chandra@Harvard.edu and Andrew.Samwick@Dartmouth.edu

-295-

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