Understanding the Economic Consequences of Shifting Trends in Population Health

Published In: NBER Working Papers / (Cambridge, MA : National Bureau of Economic Research, Aug. 2009), p. 1, 2-41

Posted on RAND.org on December 31, 2008

by Pierre-Carl Michaud, Dana P. Goldman, Darius N. Lakdawalla, Yuhui Zheng, Adam Gailey

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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, the authors 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.

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