Who Pays for the Healthcare Costs of Chronic Diseases? Evidence from Older Workers

Who pays for costs of chronic disease? In this paper, we study whether workers (50 to 64 years old) covered by employer-sponsored insurance bear the healthcare costs of chronic disease in the form of lower wages. Using a difference-in-difference approach with data from the Health and Retirement Study (HRS), we examine eight different doctor diagnosed health problems including hypertension, diabetes, cancer, lung disease, heart problems, stroke, psychiatric problems, and arthritis. To further address selection into employer-sponsored insurance, we also apply propensity score weighting to our difference-in-difference specification. We find that workers with chronic diseases receive significantly lower wages than healthy workers when they are covered by employer-sponsored insurance. Our results are consistent across different types of chronic disease. A part of wage reduction in workers with chronic disease can be explained by their higher healthcare usages. Overall, our results provides suggestive evidence to the theory of compensating wage differentials.