Moran, John R., and Kosali Ilayperuma Simon. 2006. “Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts.” Journal of Human Resources 41(2): 411–432.
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. Using data from the 1993 Wave of the AHEAD, we obtain instrumental variables estimates of the income elasticity of prescription drug use that are uniformly above one, with a middle estimate of 1.32. Simulations based on our estimates suggest that reductions in Social Security benefits similar to those incorporated in recent reform proposals would significantly reduce prescription drug use among the elderly.
John R. Moran is an assistant professor of health policy and administration at Penn State University, 116 Henderson Bldg., University Park, PA 16802. Email: jrm12@psu.edu. Kosali Ilayperuma Simon is a professor of policy analysis and management, Cornell University, 106 MVR Hall, Ithaca, NY 14853, and National Bureau of Economic Research. Email: kis6@cornell.edu. This work was supported by an unrestricted educational grant from The Merck Company Foundation, the philanthropic arm of Merck & Co. Inc., awarded through Cornell University. The authors thank Dan Black, John Cawley, Gary Engelhardt, Don Kenkel, Jeff Kubik, Sean Nicholson, Doug Wolf, and seminar participants at the 16th Annual Health Economics Conference, Binghamton University, Cornell University, Drexel University, the International Longevity Center, the NBER Health Care Program Meeting, Penn State University, Syracuse University, and Weill Medical College for helpful discussions. The data used in this article can be obtained October 2006 through September 2009 from Kosali Simon, Department of Policy Analysis and Management, Cornell University, 106 MVR Hall, Ithaca, NY 14853. Email: kis6@cornell.edu.