The Fiscal Consequences of Trends in Population Health
Published In: National Tax Journal, v. 63, no. 2, June 2010, p. 307-330
Posted on RAND.org on June 01, 2010
The public 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 health microsimulation model, 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. We find that the trends in obesity and smoking have different fiscal consequences and that, because of its more profound effects on morbidity and health care expenditures, obesity represents a larger immediate risk from a fiscal perspective. Uncertainty in residual mortality improvements represents by far the largest risk.