Health Care Prices, Health and Labor Outcomes

Experimental Evidence

by William Dow, Paul Gertler, Robert F. Schoeni, John Strauss, Duncan Thomas

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While the demand for health care has been shown to decline as prices rise, little is known about the impact of raising user fees on health outcomes or other dimensions of well-being such as labor supply and wages. Drawing on evidence from social experiments conducted in the United States and Indonesia, the authors examine the effect of an increase in the costs of health care on a series of indicators of health status, labor force participation and wages of men and women. The estimated impact of prices on health outcomes depends critically on the specific indicator under study. More subjective health indicators appear to be contaminated by measurement error which is correlated with use of health care and, therefore, prices. For example, when health prices are raised, some measures, such as self-reported general health status, improve. However, health indicators that might be thought of as being more objective, such as activities of daily living, worsen as prices rise. This deleterious impact of higher prices on health spills over to the labor market where higher health prices are associated with reduced participation, and possibly wages, particularly among the poorer, older men and women. The experimental results speak to a question that has been very difficult to resolve with non-experimental data: does health have a causal effect on labor outcomes? The balance of the evidence provides an affirmative answer to that question, particularly in low-income settings.

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