Disability costs and disability benefits for older people in Great Britain

Ruth Hancock, Marcello Morciano Health Economics Group, University of East Anglia Stephen Pudney Institute for Economic and Social Research, University of Essex Dept for Work and Pensions seminar 6 November 2014

supported by the ESRC and Nuffield Foundation

Outline • Background to our research • The personal costs of disability • Disability severity, disability costs and (pre-disability benefits) income • The effects of adjusting incomes for disability costs • Conclusions and further work

Background to our research • Some have suggested that disability benefits (AA/DLA) are not well-targeted on those in most financial and disability need (Forder and Fernandez, 2009; Wanless, 2006), as compared with social care • There have been proposals to move AA/DLA into the care system and/or means test them (Wanless 2006; HMG 2009; Commission on the Future of Health and Social Care 2014a, 2014b). • Comparisons of incomes of recipients and non-recipients of AA/DLA often include AA/DLA in income but make no allowance for the costs they are intended to address, overstating recipients’ standard of living.

Research questions • How are disability costs related to severity of disability? • What is the relationship between disability level and predisability benefit income? • How does allowing for disability costs affect conclusions about role of disability benefits? • What is the relationship between AA/DLA receipt and predisability income, controlling for disability level? • How well targeted are AA/DLA on disability and income, and how does that compare with LA-funded social care? • What benefit reforms might improve targeting?

Basic approach: Estimating disability costs as a compensating income variation

Problems of implementation • Disability not directly observed – use latent variable modelling of large set of indicators of functional limitations

• Standard of living not directly observed – use latent variable modelling of indicators of material deprivation (MD) – MD indicators not sensitive welfare indicators for all households: restrict analysis to low-income sample with “clean” income

• Conventional measures of household resources (income) don’t include income-in-kind – include valuation of subsidised services in “full income” measure

Methods: Estimating disability costs What additional income  would a person with disability level D and income Y need to be as well off as (s)he would be without disability? Standard-of-living model: 𝑆 = 𝑓 𝑌 + 𝛽𝐷 + 𝑋𝛾 + 𝑈 The form of the implicit cost of disability depends on the functional form 𝑓 𝑌 used for income. In Morciano et al (2014) we compare three forms: Linear:

𝑆 = 𝛼𝑌 + 𝛽𝐷 + 𝑋𝛾 + 𝑈

⇒

∆ = −𝛽𝐷/𝛼

Logarithmic:

𝑆 = 𝛼ln(𝑌) + 𝛽𝐷 + 𝑋𝛾 + 𝑈

⇒

∆ = 𝑌 𝑒 −𝛽𝐷/𝛼 − 1

Log-quadratic: 𝑆 = 𝛼1 ln 𝑌 + 𝛼2 ln 𝑌 ⇒

2

+ 𝛽𝐷 + 𝑋𝛾 + 𝑈

∆ more complex and flexible

Data • Four years of Family Resources Survey (FRS) data (2004/5 to 2007/8) single people aged 65+ and couples, both ≥ state pension age

• ELSA wave 6: new questions on receipt of social care which allow identification of LAfunded care • Robustness checks on matched FRS-ELSABHPS data

Disability costs (£ pw 2007 prices)

350

Results: disability costs

300 250 200 150 100 50 0 non disabled linear in Y quadratic in ln(Y)

low disability

medium

severe

linear in ln(Y) Average amount of DBs received

FRS: effects of allowing for disability costs: concentration curves for disability-related transfers

ELSA: disability, income & receipt of DBs/ LA care

Quintile of disability

Mean no. of difficulties

Mean pre- receiving DBs DBs or income LA care (p.m.)

receiving DBs

receiving LA care

1

0.0

£1,980

0.0%

0.0%

0.0%

2

0.2

£1,280

4.7%

4.7%

0.0%

3

1.6

£1,340

5.8%

5.5%

0.3%

4

4.0

£1,170

14%

13%

1.7%

5

10.2

£1,000

47%

43%

11%

3.2

£1,360

14%

13%

2.5%

Total

Robustness: receipt of AA estimates across surveys Coefficients Covariates

FRS

ELSA

BHPS

Latent disability

0.569† (0.041)

0.477† (0.035)

0.538† (0.095)

(ln) income spline to median

-0.008 (0.048)

-0.092§ (0.049)

-0.041 (0.090)

(ln) income spline from median

-0.392† (0.120)

-0.422† (0.154)

-0.411§ (0.247)

Statistical significance : † p < 0.01; ‡ p < 0.05; § p < 0.1. Standard errors in parenthesis. Model also controls for gender, age, education, home-ownership

ELSA: receipt of DBs & LA care by disability level

ELSA: receipt of DBs & LA care by pre-DBs income

Disability costs and current public support • Total public support falls short of disability costs, especially at high levels of disability

£s per week, 2012 prices

300 250 200 150 100 50 0 1 (low)

2

3

4

5

6

7

8

9

10 (high)

decile of disability disability benefits

disability benefits + value of services

disability cost

Poverty rates, 50% of most severely disabled older people, current system and illustrative reform Head count poverty

FGT(2) poverty index 0.16

80%

0.14

70%

0.12 0.10

50% 40%

30% 20%

AA/DLA=0.29/0.59 x disability costs, no SDP, current pattern of take-up/award of AA/DLA

Current policy and MTB take-up rates

FGT poverty index

% in poverty

60%

0.08 0.06 0.04

10%

0.02

0%

0.00

poverty threshold plus disabilty costs

Current policy and MTB take-up rates

AA/DLA=0.29/0.59 x disability costs, no SDP, current pattern of take-up/award of AA/DLA

poverty threshold plus disability costs

Mean disability costs and public support by disability level Current system AA/DLA=0.29/0.59 x disability costs, no SDP, current pattern of take-up/award of AA/DLA disability cost

£s per week, 2012 prices

300

250 200 150 100 50 0

1 (low)

2

3

4

5

6

decile of disability

7

8

9

10 (high)

Conclusions and further work • Disability costs faced by older disabled people are strongly positively related to severity of disability although size of costs is sensitive to detailed aspects of estimation • Disability severity is strongly negatively related to predisability benefit income • AA/DLA mimic means-tested benefits in that receipt is strongly negatively related to (pre-AA/DLA) income • It is crucial to allow for disability costs when comparing incomes of recipients and non recipients of AA/DLA: • exclude AA/DLA from income or

• deduct an allowance for disability costs • Any reform of the benefits and care system should be based on a full understanding of the reach of both systems

Further work • Sensitivity of estimated disability costs to various aspects of the econometric specification including • parametric (upper bound) • non-parametric (lower bound) • treatment of disability in couples • Re-estimate disability costs using ELSA (different measures of deprivation) • and more ……

References • • •

• • •

•

•

Commission on the Future of Health and Social Care in England (2014a) A new settlement for health and social care: final report. London: the King’s Fund. Commission on the Future of Health and Social Care in England (2014b) A new settlement for health and social care: interim report. London: the King’s Fund. Forder, J. and Fernandez, J-L. (2009) Analysing the costs and benefits of social care funding arrangements in England: technical report. London: LSE. PSSRU Discussion Paper 2644. Foster, J., Greer, J. and Thorbecke, E. (1984) A class of decomposable poverty measures. Econometrica 52(3) 761-766 Her Majesty’s Government (2009). Shaping the Future of Care Together. CM 7673. London: The Stationery Office. Morciano M., Hancock R., S. Pudney and Zantomio F. (2013), ‘Do household surveys give a coherent view of disability benefit targeting? A multi-survey latent variable analysis for the older population in Great Britain’. HEG working paper 13-03. Health Economics Group, University of East Anglia, Norwich Morciano M., R. Hancock and S. Pudney (2014) Disability costs and equivalence scales in the older population in Great Britain. Review of Income and Wealth Available at Earlyview http://onlinelibrary.wiley.com/doi/10.1111/roiw.12108/abstract Wanless, D. (2006) Securing Good Care for Older People: Taking a Long-Term View. London: King`s Fund.

Two measures of poverty Foster, Greer and Thorbecke, 1984:

𝐹𝐺𝑇 α =

𝑁 𝑖 𝐼(𝑦𝑖

< 𝑍)(1 − 𝑁

𝑦𝑖

𝑎 ) 𝑍

α = 0: head count i.e. % of people with incomes (y) below poverty threshold Z α =2: FGT(2), higher weight given to greater shortfalls below poverty threshold