| Abstract: |
Adverse health conditions have the potential to financially cripple American
households. This report reviews the large literature that considers the ways
in which health—both physical and mental—impacts household finances. The
review largely includes studies with U.S. populations and spans many
disciplines: economics, public health, law, medicine, psychology, public
policy, and sociology. The overwhelming finding is that deteriorating health,
new health conditions, and even health shocks—such as injuries—negatively
impact the financial health of households. First, unanticipated out-of-pocket
health costs reduce or deplete the household savings, sometimes forcing
household members to forego necessary consumption. This reduced consumption
could directly harm their health, providing a direct feedback loop into the
relationship between health and finances. Second, declining health or new
health conditions often force people out of the labor market for an extended
period. This reduces household earnings and either forces other household
members to work more to compensate for the earnings loss or further harms the
household balance sheet. The effects of mental health conditions are often
more detrimental than the onset of severe physical health conditions. The
detrimental effects of health conditions on household finances are generally
largest for those with the fewest protections in place: those with fewer
assets, those without insurance coverage, and those with less education.
However, the labor market consequences are sometimes largest for the highest
earners. Existing policies can blunt the effects of health on finances.
Comprehensive health insurance, specifically for the chronically ill, those
with high-cost conditions, and those covered under Medicaid, generates the
greatest benefits for overall financial health. Paid sick leave and subsidized
caregiving limit the effects of work interruptions when someone in the
household falls ill. Promising existing policies that do not require federal
changes include pausing loan obligations, financial literacy, and pairing
healthcare choice with cost information. |