To investigate the consequences of endogeneity bias on the estimated effect of having health insurance on health at age 63 or 64, just before most people qualify for Medicare, and to simulate the implications for total and public insurance (Medicare and Medicaid) spending on newly enrolled beneficiaries in their first years of Medicare coverage.
The longitudinal Health and Retirement Survey of people who were 55–61 years old in 1992, followed through biannual surveys to age 63–64 or until 2000 (whichever came first), and those who were 66–70 years olds from the Medicare Current Beneficiary Surveys, 1992–1998.
Instrumental variable (IV) estimation of a simultaneous equation model of insurance choice and health at age 63–64 as a function of baseline health and sociodemographic characteristics in 1992 and endogenous insurance coverage over the observation period.
Continuous insurance coverage is associated with significantly fewer deaths prior to age 65 and, among those who survive, a significant upward shift in the distribution of health states from fair and poor health with disabilities to good to excellent health. Treating insurance coverage as endogenous increases the magnitude of the estimated effect of having insurance on improved health prior to age 65. The medical spending simulations suggest that if the near‐elderly had continuous insurance coverage, average annual medical spending per capita for new Medicare beneficiaries in their first few years of coverage would be slightly lower because of the improvement in health status. In addition, total Medicare and Medicaid spending for new beneficiaries over their first few years of coverage would be about the same or slightly lower, even though more people survive to age 65.
Extending insurance coverage to all Americans between the ages of 55 and 64 would improve health (increase survival and shift people from good–fair–poor health to excellent–very good health) at age 65, and possibly reduce total short‐term spending by Medicare and Medicaid for newly eligible Medicare beneficiaries, even though more people would enter the program because of increased survival.