Graeme Peterson
Dissertation Title: "Essays on Health Economics and Aging"
This dissertation includes three essays on health economics and the economics of aging. In chapter 1, I study how health insurance markets evolve with high-cost new medical innovation. Chapter 2 explores the causal drivers of the United States' decline in adjusted dementia prevalence since 2000. Chapter 3 examines how declining age-sex adjusted dementia prevalence and rising life expectancy have affected expected life years lived with dementia.
Chapter 1 - Adverse Selection and Technological Change: Evidence from Medicare Part D
New medical technologies are increasingly expensive. These high-cost innovations make generous health insurance coverage more valuable for individuals at risk of needing new therapies. However, if those individuals are also costlier to insure, innovation may generate adverse selection. I develop a conceptual framework to study this trade-off and examine it empirically using data from Medicare Part D, the prescription drug insurance program for the elderly. I first show that an innovation shock driven by high-cost new drug approvals in the mid-2010s generated substantial adverse selection against Part D plans with generous coverage for those drugs, increasing those plans' average costs by 35%. In the years following the shock, the market exhibits hallmark patterns of dynamic adverse selection: switchers into generous coverage are high-cost and more likely to use the new drugs; premiums rise by 52%; and price sensitive low-cost enrollees switch out of generous plans. Ultimately, the market significantly unravels, as the market share for the generous plans falls by 49%. Using a structural model of plan choice, I show that this unraveling leads to inefficiently low equilibrium enrollment in the generous plans and raises prices for those who remain enrolled, substantially reducing the insurance value of generous coverage and decreasing ex-ante social surplus. More robust reinsurance and risk adjustment policies would limit the losses from selection.
Chapter 2 - Sources of Cognitive Improvements in the US Elderly Population (with David Cutler)
The age-sex adjusted prevalence of dementia in the United States has declined by more than 30% since 2000. However, the underlying sources of this cognitive improvement remain unclear. We examine this decline, focusing on two commonly hypothesized contributors to cognitive function: declining air pollution and rising education. Using the Health and Retirement Study (HRS) and quasi-experimental designs, we assess the importance of pollution and education for improvements in cognitive function since 2000. To form exogenous measures of exposure to small particulate matter (PM2.5), we consider large, exogenous changes in power plant emissions. We instrument for educational attainment by digitizing historical data on the timing of university openings across states. We find that both pollution and education affect cognition. These effects grow monotonically with age but show no systematic pattern by individuals’ genetic predisposition for Alzheimer’s disease. Pollution reductions and increased educational attainment together can more than fully explain the reduction in dementia prevalence over time.
Chapter 3 - Changes in Lifetime Dementia Expectation, 2000-2016 (with David Cutler)
Rising life expectancy in the U.S. has focused considerable attention on the possibility of widespread increases in the number of people with Alzheimer’s disease and related dementias (ADRD). At the same time, however, the age-sex adjusted prevalence of ADRD fell by more than 30% from 2000-2016. These patterns have competing implications for the evolution of years lived with dementia. In this paper, we combine data on dementia prevalence from the Health and Retirement Study (HRS) with life table data from the National Center for Health Statistics (NCHS) to estimate changes in dementia and dementia-free life expectancy at age 65. From 2000-2016, total life expectancy at age 65 for the average American increased by approximately 1.6 years. Nearly all of this increase was driven by increases in dementia-free life years; we find substantively small and statistically insignificant changes in life expectancy with dementia at age 65 since 2000. The increase in dementia-free life years is largely driven by increases in life years lived without any impairment, rather than added years with milder cognitive decline. Both patterns persist across all racial and ethnic subgroups that we study. Our results indicate that as Americans are living longer, the additional years are cognitively healthy.