Medicare, Activity Limitations and the Ability to Work

Can health insurance, in particular Medicare, improve and extend the working lives of the elderly? While Medicare has been shown to increase the use of healthcare services, decrease mortality and reduce exposure to catastrophic medical expenditure risk, its impact on the day to day lives of the elderly is not well understood. Using a regression discontinuity research design, we consider the effect of Medicare on functional limitations, activities of daily living, work limitations and a host of other measures of physical and psychological wellbeing. We demonstrate sharp improvements in functional limitations, work disability and, to some extent, measures of psychological wellbeing at age 65. These patterns, particularly for functional limitations, appear irrespective of race, education and gender. We explore several mechanisms to explain these patterns such as medication and health equipment use. These findings could have important implications for the cost-benefit analysis of public health insurance schemes and lessons to reduce work disability among the (near) elderly.