Medical Care and Health To no one’s surprise, the literature has found the consumption of medical care has a positive impact on the production of adult health. However, the results also indicate that quantitatively, the impact is relatively small. For example, Hadley (1982) finds that a 10 percent increase in per capita medical care expenditures results in only a 1.5 percent decrease in the adult mortality rate. His result confirms those of an earlier study conducted by Auster et al. (1969), who estimate that a 10 percent increase in medical services leads to a 1 percent drop in the age-adjusted mortality rate. Sickles and Yazbeck (1998) find that a 10 percent increase in health-related consumption leads to about a 0.3 percent improvement in health as measured by a comprehensive health index that considers a number of quality-of-life variables. Finally, based upon a random assignment of households to different health plans, Newhouse et al. (1993) find that households in low coinsurance plans received more medical care yet possessed virtually the same level of health as those households in high coinsurance plans, ceteris paribus. Enthoven (1980) has referred to the small marginal impact of medical care services on the health status of adults as “flat-of-the-curve” medicine.
Education and Health The positive relation between education and health is well documented in the literature. For example, Elo and Preston (1996) find that education had a significant impact on mortality for both men and women in the United States during the early 1980s, with the impact of education greater for men and those of working age than for women and the elderly. Lleras-Muney (2001) finds a significant relation between education levels and health. In particular, she finds that one more year of schooling decreases the probability of dying within 10 years by 3.6 percent. More recently, Cutler and Lleras-Muney (2006) estimate that an additional year of education increases life expectancy by between 0.18 and 0.6 years.
Income and Health Empirical studies have also documented a positive connection between income and health. Ettner (1996) finds that increases in income enhance both mental and physical health, while Lantz et al. (2001) find that income and education are both associated with improved health. More specifically, they find that people with less than a high school education and incomes below $10,000 are between two and three times more likely to have functional limitations and poorer self-rated health than their more advantaged counterparts.
While the positive relation between income and health is well established in the literature, a question remains concerning how temporary changes in the macro economy impact health. In other terms, what is the relationship between cyclical changes in the macro economy and overall health? Your first inclination is to assume that a procyclical relationship holds between the state of the economy and health. In other words, as an economy emerges from a recession and the unemployment rate begins to fall, overall health should improve. You might argue that higher per capita incomes should translate into improved health as people have more discretionary income to spend on medical care. In addition, as more people acquire jobs with employer-financed health insurance, the out-of-pocket price of medical care should drop, causing people to consume more health care. An improved economy may also be associated with healthier lifestyles because as unemployed workers find employment, stress levels are likely to fall along with alcohol consumption and smoking.
Ruhm (2000, 2003) argues that just the opposite may occur: an improved economy may be linked to poorer health. He cites three reasons why health may decline during a cyclical economic expansion. First, the opportunity cost of time is likely to increase with an improved economy. As workers find employment, the amount of leisure time they have to perform what Ruhm refers to as health-producing activities (such as exercise and eating right) diminishes. Second, the act of work may adversely impact the production of health. As the economy improves and more workers find employment, the number of work-related accidents and work-related stress cases increases. Third, an economic expansion may cause an increase in other causes of mortality such as traffic fatalities, homicide, and suicides.
To test the relationship between cyclical conditions and health, Ruhm estimates the impact that various economic indicators such as unemployment and personal income have on a number of health indicators. The author utilizes a state-based data set for the years 1972 through 1991 and estimates a number of equations utilizing a variety of health measures. Among the measures of health included in the analysis were overall mortality rates, age-based mortality rates, and deaths due to specific causes such as cardiovascular diseases, chronic liver disease and cirrhosis of the liver, motor vehicle accidents, and suicide.
The results are illuminating and suggest an inverse relationship between the strength of the economy and health in the short run. Overall, Ruhm finds that a 1 percent drop in the unemployment rate, relative to the state historical average, results in an increase in the total mortality rate of between 0.5 and 0.6 percent. In addition, Ruhm finds that the impact of changes in the unemployment rate on mortality rates appears to concentrate among the relatively young, between ages 20 and 44. This makes intuitive sense given they are the ones likely to be hit hardest by temporary changes in economic conditions.
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