Microsimulation in a Cold Climate David Bell University of Stirling

OPERA  Older PEople’s Resource Allocation model  Addresses issues of population ageing  Design has been reactive rather than proactive  Partly due to funding issues  Consequence – coherence? – but closely linked to policy process 2 ESRC Microsimulation Seminar Leeds 2nd July 2009

Structure of Talk  Structure of OPERA  Applications 1.Local Income Tax – Burt Commission 2.Indexation of Social Security Benefits – Finance Committee 3.Modelling Home Care Costs – Audit Scotland 4.Dementia Satellite Model – Alzheimer’s Scotland ESRC Microsimulation Seminar Leeds 2nd July

Structure of OPERA  Population UK Households (Private/Non-Private?) Subsets – region – local authority?  Main datasets Family Resources Survey  (Boosted sample in Scotland) Survey of Personal Incomes  What to do about communal dwellings? ESRC Microsimulation Seminar Leeds 2nd July

Structure of OPERA  Accounting Relationships Taxes and Benefits Non-behavioural Home Care Parameterised from external dataset Care Homes Calibrated from key statistics More data soon available ESRC Microsimulation Seminar Leeds 2nd July

Structure of OPERA  Software - Stata/Mata  Statistics  Distributions  Panel  Survival  Directly integrate estimation results  Graphics  Wide range of flexible routines  Choropleth maps Not currently in Stata Corp release ESRC Microsimulation Seminar Leeds 2nd July

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Example 1: Local Income Tax  Proposal to replace council tax with local income tax Variant 1: uniform rate of local income tax throughout Scotland Variant 2: each local authority able to set its own local income tax  What would be the distributional and spatial consequences? ESRC Microsimulation Seminar Leeds 2nd July

Distributional Effects ESRC Microsimulation Seminar Leeds 2nd July

Winners and Losers with Local Income Tax ESRC Microsimulation Seminar Leeds 2nd July

Costs (% of Disposable Income) of Various Local Tax Structures ESRC Microsimulation Seminar Leeds 2nd July

Example 2 – Projecting Consequences of Indexing Social Security Benefits to Prices  Rather than transit from Period 1 to Period n in unit time period increments, ignore the dynamics and reweight data based on externally projected control totals.  Disaggregate geographically ESRC Microsimulation Seminar Leeds 2nd July

Effect of Continued Price Indexation on Household Poverty ESRC Microsimulation Seminar Leeds 2nd July

14 Example 3 - Home Care Costs Based on Welsh Local Authority Survey  Distribution of Costs Highly Skewed  40% of clients account for 10% of costs  10% of clients account for 40% of costs  Poses real problems for estimation, simulation

15 Modelling Home Care Costs  Common specification of cost functions Log cost - log(y) = Xβ + ε But E(ln(y)) ≠ ln(E(y)) Unbiased estimates of y difficult if ε is heteroscedastic in x  If ln(y) ~ Normal (μ=xβ, σ 2 =f(x)), then E(y|x) = exp(xβ +0.5 f(x))

16 Determinants of Personal Care Costs  Costs increase with disability decrease with age decrease with presence of informal carer unaffected by gender and ethnicity vary by local authority

17 Costs by Age and Gender UK as a Policy Laboratory

18 Costs by Index of Disability (Resource Need)

19 Charges by Disability

20 Model Calibration  Estimate determinants of costs of care using Welsh dataset  Estimate determinants of needing care and of being in receipt of local authority care using FRS data  Match FRS disability classification with that used in Welsh survey  Select most disabled of those receiving LA care in FRS sample to receive personal care – match with proportions receiving LA personal care in Scotland (thus model mimics Scottish policy setting)  Stochastic simulation of model to maintain distribution of costs rather than focus on point estimate  Results weighted using FRS weights to represent UK/Scottish population

Example 4 - Simulating Dementia Costs  Satellite Model  Not restricted to private households  Uses information on life expectancy, dementia prevalence, duration and costs  Competing risks model  Time aggregation to generate annual estimates ESRC Microsimulation Seminar Leeds 2nd July

Simulating Dementia Costs  Weibull hazard used to model months of life expectancy after age 65  Scale and shape parameters set to approximate life expectancy patterns ESRC Microsimulation Seminar Leeds 2nd July

Life Expectancy by Multiple Deprivation Decile ESRC Microsimulation Seminar Leeds 2nd July

Prevalence of Dementia ESRC Microsimulation Seminar Leeds 2nd July

Dementia Costs  Types of “what if” questions?  What if prevalence rises/falls?  What if onset could be delayed by better medical interventions?  What if cost structure changes?  What if dementia sufferers cared for at home rather than in care homes? ESRC Microsimulation Seminar Leeds 2nd July

Dementia by Deprivation Decile ESRC Microsimulation Seminar Leeds 2nd July

Changed Individual Dementia Prevalence ESRC Microsimulation Seminar Leeds 2nd July

Change in Costs Associated with Changed Prevalence ESRC Microsimulation Seminar Leeds 2nd July

Modelling Dementia Care  Model not specific to dementia – could run a different/wider range of competing risks  How to integrate calibrated satellite model with main dataset?  How to deal with care home residents on whom liuttle socio-economic information available ESRC Microsimulation Seminar Leeds 2nd July

Conclusions  Calibration helps explain the obvious  But is no more powerful than the data on which it is based  Don’t overplay the results  Careful work with policy makers important, especially when calibration weak ESRC Microsimulation Seminar Leeds 2nd July

31 Care Costs  Most recent SE estimate of cost of providing FPC at home to pensioners in ~ £120m  Model estimate ~ £170m Consistent with LAs spending approx £50m prior to introduction of policy  What about the personal care costs of those aged under 65 requiring PC?  Model estimate ~ £130m  Fewer clients, higher cost per client

32 Model Results  Weekly Costs by Age and Gender  Household Net Income by Costs of Care  Personal Care Costs by Disability  Aggregate Annual Costs by Age and Gender  Influence of Informal Carers On Costs  UK Costs of Applying Scottish Personal Care Policy to Domiciliary Clients

33 Costs by Age and Gender

34 Costs by Household Net Income

35 Costs by Disability

36 Charges by Disability

37 Aggregate Costs by Gender and Age Group

38 How Does Presence of Informal Carer Influence Local Authority Costs?  Someone with an informal carer less likely to receive LA care  Someone receiving LA care will receive less costly support if informal carer present  This does not account for effects of informal care provision on labour market participation  When local authority care available, informal carers may act as gatekeepers and/or provide other services