Targeted
News Service (Press Releases)
February 23, 2018
SANTA CRUZ, California, Feb. 22 -- The University of
California issued the following news release:
Being hospitalized is tough enough strictly as a health
matter. But now a study co-authored by professors from MIT, UC Santa Cruz, and
Northwestern University reveals its painful financial impact as well: On
aggregate, hospitalization and the health problems that cause it lead to a 20
percent drop in earnings and an 11 percent drop in employment for adults
between ages 50 and 59, among other negative effects.
Moreover, job troubles are merely one of the financial
costs that follow hospital stays. As the study shows, adults who have health
problems leading to hospitalization have worse subsequent access to credit --
as well as larger unpaid medical bills and more out-of-pocket medical spending.
And while medical insurance does temper some of these
outcomes, the long-term financial hurt of a medical event serious enough to
cause hospitalization is significant even for the insured.
"The sobering truth is that even people who have
health insurance don't have anywhere close to full insurance," says Amy
Finkelstein, an economist at MIT who helped lead the study. "Not [only]
for the reasons that we're used to thinking about, [such as] cost-sharing and
high deductibles, but because health insurance doesn't insure the economic
consequences of poor health."
The paper, "The Economic Consequences of Hospital
Admissions," has just been published in the latest issue of the American
Economic Review. The co-authors are Finkelstein, who is the John and Jennie S.
MacDonald Professor of Economics at MIT; Carlos Dobkin, a professor of
economics at the University of California, Santa Cruz; Raymond Kluender, a PhD
student in economics at MIT; and Matthew Notowidigdo, an associate professor of
economics at Northwestern University.
This could hurt
The bulk of the data in the study comes from the state of
California, including hospitalization records from the years 2003-2007 and
credit reports from 2002-2011, for people ages 25 and up. The researchers
examined records for roughly 780,000 people with health insurance and about
150,000 people without health insurance. The data was available under
restricted conditions to preserve the anonymity of the people being studied.
Some of the data, which focused on job outcomes, also came
from the Health and Retirement Study (HRS), a biannual U.S. national survey,
and covered the years 1992-2012 for nearly 10,000 people.
While other studies have relied on self-reported survey
data to infer the financial fallout that follows poor health, the research team
in this case could more robustly establish and quantify the cause-and-effect
relationship between the onset of serious medical problems and their ensuing
financial implications. By examining the California medical and credit records
in tandem, along with the HRS data, they established how the hospitalization
episodes altered individuals' economic trajectories.
"What's really unique about the paper is the
data," Notowidigdo says.
The average hospital admission in the study lasted four
days. While the length and long-term effects of any one medical event can vary
widely, the aggregate effects were striking. Consider the employment numbers:
Having medical problems that require a hospital stay reduces employment by 8.9
percentage points in the first subsequent year, on average, and 11.1 percentage
points by the third year after admission.
That corresponds with an average decrease in earnings of
$6,445 in the first year after a hospital admission, and $11,071 in the third
year. Over the whole three-year span, earnings drop an average of $8,753
annually, a decline of 20 percent.
Three years after their hospitalizations, employees also
face a decrease in annual time worked by 228 hours, and self-reported
retirement increases by 10 percentage points. All the employment numbers are
striking, the researchers say.
"The magnitudes are pretty similar to what labor
economists have studied when they look at people who are laid off in what's
called a 'mass layoff event,' if a manufacturing plant closes down and a lot of
people lose their jobs," Notowidigdo says.
Meanwhile, after people are hospitalized, their long-term
access to credit declines and their debt levels worsen. Four years after a
hospital admission, the average credit limit of individuals declines by $2,215
on average, or about 5.5 percent, and people's total collection balances -- the
amount owed -- increase by $302, on average.
A significant part of this pocketbook crunch is generated
by medical expenses. Average annual out-of-pocket medical spending increases by
$1,429 in the three years after an admission, showing that serious health events
lead to a variety of unreimbursed expenses.
Not surprisingly, people with health insurance fare better
financially than those lacking it, and the study helps measure the difference.
For instance: Four years after hospital admissions, people with insurance owe
$300 more in unpaid medical bills, on average, while people without insurance
have an average increase of $6,000 in unpaid medical bills.
Time to rethink insurance?
As for the precise mechanism through which hospitalization
leads to dire economic outcomes, there is almost certainly a wide variety of
scenarios in play. Serious health problems may impair people's ability to work,
make them less desirable to employers, or reduce their likelihood of searching
for new and higher-paying jobs.
Because the study focuses on a very large number of
individuals who had not been previously hospitalized, and examines changes to
their economic situations after these events occurred, it is clear that the
serious medical events leading to the hospitalizations triggered the ensuing
financial effects; it is not that people previously suffering from serious
health problems were dropping out of the work force due to those prior
problems. Therefore, Kluender says, the scholars can "confidently conclude
it is a causal relationship and not just a correlation."
In policy terms, the researchers say, the results also
show the limits of health insurance in the U.S. Insurance programs are designed
to reimburse most medical costs. But since medical costs are only one part of
the financial hardship resulting from hospital stays -- with the decline in
income being so significant as well -- insurance as currently conceptualized
may be incomplete.
As the paper notes, health shocks to households with
people under the age of 60 in Denmark also produce a decline in earnings of 15
percent to 20 percent -- but about 50 percent of that income drop is insured in
various forms, including sick pay and disability insurance.
"Most of the time when you're thinking about health
insurance, you're only talking about the risk of accruing medical
expenses," Kluender says. "But in the U.S. we lack the robust sick
leave and disability policies that protect households against the risk of lost
earnings while you're sick."
Finkelstein, for her part, also says that the results open
up a series of policy questions about whether the U.S. needs more robust
short-term disability policies to compensate for the lost earnings that occur
after hospital stays.
"The glass half full is that there's a lot of
coverage for medical expenditures," Finkelstein says. "The glass half
empty, if you're a prime-age worker, is there's much less coverage for
employment and earnings losses in the event of poor health."
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