Panel Paper: The Financial Impact of Dementia: Evidence from Credit Report Data

Thursday, November 7, 2019
I.M Pei Tower: Majestic Level, Majestic Ballroom (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Lauren Hersch Nicholas, Johns Hopkins University and Joanne Hsu, Federal Reserve Board of Governors

Rapid growth in the elderly population combined with a lack of effective medical treatments to reverse or delay Alzheimer’s Disease and Related Dementias (ADRD) are estimated to lead to over 12 million older Americans living with dementia by 2050. Dementia represents a financial threat to older adults in addition to a health concern; early warning signs include difficulties managing money and paying bills, erratic and uncharacteristically risky financial decisions, and greater susceptibility to fraud. Cognitively impaired patients frequently overestimate their financial abilities, placing them at risk of fraud, inappropriate asset allocation, and credit delinquency, especially before their dementia is formally diagnosed. While the popular press has reported on families learning of loved ones’ dementia through devastating financial losses such as home foreclosure, relatively little is known about the frequency, nature, and timing of adverse financial events related to dementia.

In this paper, we probabilistically match the Federal Reserve Bank of New York Consumer Credit Panel (CCP)/Equifax data to Medicare claims data to study the timing of adverse financial events relative to a dementia diagnosis. Using birth year, household size, up to 5 years of zip codes and 2018 census block, we match 55,721 CCP participants who live alone to a non-random sample of Medicare beneficiaries that includes all beneficiaries who trigger the Chronic Conditions Warehouse criteria for ADRD by 2014 and a sample of beneficiaries who have not triggered the algorithm and live in counties with low Medicare Advantage penetration. 23% of the matched sample (versus 12.3% of all elderly fee-for-service Medicare beneficiaries) develop ADRD during our study period.

We use CCP data to study changes in credit scores, a summary measure of a person’s likelihood to default on a loan, an indicator for any debt payment delinquencies (bills that are 30 or more days past due), new tax liens or judgements in the past 2 years, which typically indicate missed tax payments, and large increases in credit card debt, which can indicate difficulties managing money or remembering to pay bills. We also consider two credit events that are likely to represent financial fraud in this age group; large increases in non-housing debt and new loans opened in the last 6 months. We estimate event study regression models binning data at quarterly and two-year intervals. We find that payment delinquency begins two to four years before an ADRD diagnosis, with a 1.1 percentage point (8.5%) increase the probability of having at least 1 late payment. Delinquency rates increase over time, reaching a 2.7 percentage point (21%) increase in the 2 to 4 years post diagnosis. A series of placebo tests verify that these patterns are unique to ADRD. We do not observe similar financial activity associated with either arthritis or glaucoma, which, like ADRD are gradual-onset conditions, or with acute health events (heart attack and hip fracture).