How Do Environmental Policy and Medicare Mix?

In March of this year EPA released the second round of its Prospective Reports. Under Section 812 of the 1990 Clean Air Act Amendments, the agency is required to develop periodic reports that estimate the benefits and costs of the provisions of the Clean Air Act calling for restrictions that lead to less air pollution. The objective of the analysis is to inform Congress and the general public about the social benefits and costs of these policies. The report estimates in 2010 that the annual benefits of air quality regulations (in real terms) amount to 9.5% of gross domestic product in that year. The benefit cost ratio implied by their analysis (for their central case assumptions) was 25 to 1. Most of these gains arise from improved human health, especially increased longevity. In their simulations they compute the cumulative life years gained by different age groups due to the regulations. By 2020, these amount to 22 million life years “gained” and 84.5 percent of these gains accrue to people over 60 years of age! One month later, Congressman Paul Ryan proposed changes to federal payments under Medicare and Medicaid programs—because meeting the health care needs of this same group is expected to become increasingly difficult. The two policies are clearly related in many ways. Two of these ways are appreciated by most analysts. A third is not as apparent and that is the subject of research at CEESP. Consider first the two interactions that are appreciated. Clean air reduces the costs of medical programs. By improving older adults’ health we should expect it reduces their need for care. However, there is a second effect –it does extend life expectancy. These life extensions increase the size of the population that must be covered. The costs of doing this need not offset the savings. But we don’t know the answers to this question. We do know that health effects on older populations have impacts on others in their families—the caregivers. While this is common sense, this third influence has not been a focal point for policy analysts. Someone assumes greater responsibility for the care of elderly who may, prematurely, need that help. These adjustments can change the labor supply, resource and time allocations, and locational decisions of other family members. With support from the U.S. Environmental Protection Agency, Professor Mary Evans, the Jerrine and Thomas Mitchell ’66 Associate Professor of Environmental Economics at Claremont McKenna College, Dr. Christine Poulos, Senior Economist at RTI International and Kerry Smith are considering how these types of dependency relationships in the household affect the behavior of the adult caregivers.¹ The most recent findings of this research were presented at the June 2011 AERE Conference. This research considers how health shocks related to air pollution affect where older adults live. Special attention is given to the choice to live near their adult children. In related research that appears in the July 2011 issue of the Journal of Environmental Economics and Management, these authors consider how the relationship of the person being cared for influences the choices people would make for programs to reduce health impacts of air pollutants. Later this year, the authors will field surveys with Knowledge Networks to consider these relationships in more detail. Look for follow-up briefings to come. Learn More: ¹ Our research also considers the effect of increased asthma on children for these caregivers and this work will be profiled in a later research bulletin.