Working Paper: NBER ID: w15231
Authors: Pierrecarl Michaud; Dana Goldman; Darius Lakdawalla; Yuhui Zheng; Adam Gailey
Abstract: The public economic burden of shifting trends in population health remains uncertain. Sustained increases in obesity, diabetes, and other diseases could reduce life expectancy - with a concomitant decrease in the public-sector's annuity burden - but these savings may be offset by worsening functional status, which increases health care spending, reduces labor supply, and increases public assistance. Using a microsimulation approach, we quantify the competing public-finance consequences of shifting trends in population health for medical care costs, labor supply, earnings, wealth, tax revenues, and government expenditures (including Social Security and income assistance). Together, the reduction in smoking and the rise in obesity have increased net public-sector liabilities by $430bn, or approximately 4% of the current debt burden. Larger effects are observed for specific public programs: annual spending is 10% higher in the Medicaid program, and 7% higher for Medicare.
Keywords: population health; public finance; microsimulation; health trends; obesity; smoking
JEL Codes: I10; I38; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in obesity (I14) | decrease in life expectancy (J17) |
| decrease in life expectancy (J17) | reduce costs for the annuity system (J32) |
| increase in obesity (I14) | increase in morbidity and healthcare costs (I12) |
| increase in morbidity and healthcare costs (I12) | greater public sector liabilities (H69) |
| present value of increased medical expenditures due to rising obesity (J17) | outweigh savings from reduced annuity expenditures (G52) |
| reduction in smoking (I12) | decrease in mortality and morbidity risk (I12) |
| decrease in mortality and morbidity risk (I12) | increase in longevity (D15) |
| increase in longevity (D15) | greater burden on the annuity system (H55) |
| combined trends in smoking and obesity (I12) | net public sector liabilities (H69) |
| rolling back obesity and smoking to 1978 levels (I12) | lower public healthcare spending (H51) |
| timing and duration of health changes (C41) | medical cost savings accrue earlier than increased annuity burden (G52) |
| medical cost savings accrue earlier than increased annuity burden (G52) | net increase in public sector liabilities over time (H69) |