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The incidence of the healthcare costs of chronic conditions

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International Journal of Health Economics and Management Aims and scope Submit manuscript

Abstract

Who pays for the costs of chronic conditions? In this paper, we examine whether 50–64-year old workers covered by employer-sponsored insurance bear healthcare costs of chronic conditions in the form of lower wages. Using a difference-in-differences approach with data from the Health and Retirement Study, we find that workers with chronic diseases receive significantly lower wages than healthy workers when they are covered by employer-sponsored insurance. Our findings suggest that higher healthcare costs of chronic conditions can explain the substantial part of the wage gap between workers with and without chronic diseases.

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Data availability

This paper uses publicly available data from RAND HRS file.

Code availability

Code for data cleaning and analysis is available upon request.

Notes

  1. In this study, we use the terms “chronic disease” and “chronic condition” interchangeably.

  2. Fixed effects were used in both previous studies. Although Cowan and Schwab (2011) found evidence of wage adjustment for smoking in the fixed-effects models, Bhattacharya and Bundorf (2009) did not find evidence of wage offsets for obesity in their fixed-effects models.

  3. Most of the alternative datasets do not have information on either chronic conditions (e.g., NLS or PSID) or hourly wage information (e.g., NHIS). The MEPS could be an alternative dataset, but it has some limitations for the analysis of wages. First of all, because the hourly wage in MEPS is right censored (e.g., 80 dollars in the 2015 MEPS), it is impossible to capture changes in wages among workers with high wages (probably in good jobs that offer ESI). This may lead to underestimation bias in the estimates for wage adjustments. In addition, the MEPS is a quasi-panel (2 years), which does not permit checking a long-term wage adjustments with fixed effects estimates. This could be a problematic especially if wages are not adjusted quickly to address the onset of a chronic condition.

  4. In Appendix Table 10, we provide the number of individuals in the specified transition of (1) having their first chronic conditions, (2) increasing the number of conditions, and (3) changing jobs by the changes in the ESI status between two consecutive waves.

  5. Similarly, Bhattacharya and Bundorf (2009) did not find statistically significant wage offsets from the fixed-effects models due to fewer switchers and less statistical power.

  6. We also compared the difference in the expected medical expenditure between workers with and without chronic conditions using the 2002 MEPS. Because the MEPS does not provide information on cancer, we defined the status of having any chronic condition as a worker having high blood pressure, diabetes, lung disease, heart problems, stroke, or arthritis. The gap in the average medical expenditure between workers with and without chronic conditions was $2,340 (= $3,794—$1,454). Although the gap in medical expenditure was lower than our estimate of $3,100, the difference was not large, and the lower estimate may result from no information on cancer in MEPS.

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Acknowledgments

We thank to John S. Earle, Sita N. Slavov, Len M. Nichols, and Thomas DeLeire for advice and support to this research. We also thank Sarah Hamersma and others at APPAM Fall Research Conference. This research was funded in part by the Ewing Marion Kauffman Foundation through the Kauffman Dissertation Fellowship. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of the World Bank or Kauffman Foundation.

Funding

Lee reports a grant (dissertation fellowship) from Ewing Marion Kauffman Foundation, during the conduct of the study. No financial disclosures were reported by Jeung.

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Authors and Affiliations

  1. The World Bank, Washington , D.C, USA

    Kyung Min Lee

  2. Schar School of Policy and Government, George Mason University, Arlington, VA, USA

    Kyung Min Lee

  3. Department of Health Administration and Policy, George Mason University, 4400 University Dr. MS 1J3, Fairfax, VA, USA

    Chanup Jeung

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  1. Kyung Min Lee
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Correspondence to Chanup Jeung.

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Appendix

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Table 10 Transitions of Chronic Conditions and Jobs by Health Insurance Status
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10.

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Lee, K.M., Jeung, C. The incidence of the healthcare costs of chronic conditions. Int J Health Econ Manag. 21, 473–493 (2021). https://doi.org/10.1007/s10754-021-09305-6

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