Evaluating the Impact of Social Security Benefits on Health Outcomes Among the Elderly

WP#2015-25

Abstract

Given concerns about the depletion of the Social Security Trust Fund, policymakers are considering several proposals to improve the financial sustainability of the program, including some that would lower benefits over time.  The extent to which reductions in Social Security benefits impact individual health and well-being is not well understood.  Using data from a nationally representative survey of older adults, we examine the impact of changes in Social Security income on a broad range of elderly health outcomes, including cognitive function, depression, disability and self-rated health.  Prior literature has documented a positive association between income and health.  However, this association may reflect unmeasured confounders that are correlated with both income and health (e.g. childhood environment) or may reflect the impact of health on income.  To address these concerns and to identify the causal impact of income on health, we employ an instrumental variables strategy based on changes in Social Security income due to amendments to the Social Security Act in the 1970s.  We discuss the implications of our findings for aging populations and for public policy.

The paper finds that:

  • Higher Social Security benefits due to amendments to the Social Security Act in the 1970s led to significant improvements in elderly health outcomes. Specifically, individuals receiving higher Social Security benefits due to these amendments saw significant improvements in functional limitations (e.g. bathing, eating, preparing meals) and cognitive function.
  • Improvements in health are not uniform across all groups. In particular, improvements in cognitive function were larger for individuals with better cognition.
  • Further, higher Social Security income led to significant decreases in depressive symptoms but only in the case of households whose primary Social Security beneficiary had less than a high school education.

 
The policy implications of the findings are:

  • Our findings have important implications for aging populations and for public policy. Our findings suggest that cuts to Social Security benefits could potentially have significant negative impacts on the functional limitations and cognitive function of older adults, while increases in benefits could lead to improvements in health outcomes.