The Incidence of the Healthcare Costs of Chronic Health Conditions

As of 2012, about half of all adults had one or more long-lasting conditions that usually can be controlled but not cured. Chronic conditions are among the most costly of all health problems. Who bears the costs of medical care associated with chronic health conditions?

In competitive health insurance markets, equilibrium prices never ignore relevant data about the insured. Individuals with pre-existing conditions who obtain health insurance in private markets are likely to pay for their higher utilization of medical care in the form of higher health insurance premiums. With health insurance coverage mostly employment-based, the incidence of the health care costs of chronic health conditions for the under 65 population is largely a question of the incidence of the costs of employer-sponsored coverage. Premiums for employer-sponsored coverage could potentially reflect differences across individuals in risk factors. Employee premium contributions could, in theory, vary by employee characteristics, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) renders such behavior illegal. Alternatively, variation in individual expected expenditures could be passed on to individual workers in the form of differential wage offsets for employer-sponsored coverage. Equilibrium wage offsets based on health history eliminate such arbitrage opportunities.

This paper aims to see whether workers with chronic conditions bear the cost of the incremental medical care associated with their conditions through lower wages. The existing literature provides evidence on whether the incidence of the costs of employer-sponsored coverage varies by individual risk factors as signaled by obesity (Bhattacharya & Bundorf , 2009), gender[1] (Cowan and Schwab, 2015) and whether the worker has been smoking or not (Cowan and Schwab, 2011). However, to my knowledge, there is no study yet that focused on incremental medical care associated with chronic health conditions.

My empirical strategy follows that of Bhattacharya & Bundorf (2009) which uses a difference-in-difference approach. In particular, the model is:

w_it=α+βX_it+δH_it+γP_it+λH_it*P_it+ε_it

where H_it indicates whether worker i enrolls in health insurance through her employer at time t, P_it represents whether worker i has a pre-existing health condition, and X_it represents a set of observable covariates that determine either labor market productivity, expected medical costs of insurance coverage, or both. λ represents the difference-in-difference estimate of the individual wage offset attributable to insuring a worker with a chronic condition. This paper will also see if λ varies by type of chronic health condition. The empirical work in this paper will be based on NLSY data, collected by Bureau of Labor Statistics.

References:

Bhattacharya, J., & Bundorf, M. K. (2009). The Incidence of the Healthcare Costs of Obesity. Journal of Health Economics, 28(3), 649-658.

Cowan, B. & B. Schwab (2015). “Employer Sponsored Health Insurance and the Gender Wage Gap”, Forthcoming, Journal of Health Economics

Cowan, B., & Schwab, B. (2011). The Incidence of the Healthcare Costs of Smoking. Journal of Health Economics, 30(5), 1094-1102.

 

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[1] Women have higher expected healthcare expenses.

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