Today, two of the primary focal points for many policy leaders include boosting individual income growth and, independently, reducing health care spending growth. None that we’re aware of, however, have identified and are considering policies that address a central common cause adversely driving both policy challenges: the rising prevalence of chronic illness.
The extent to which chronic conditions drive health care spending is well known. Annual medical costs rise dramatically with onset of a chronic condition, and further compound with additional morbidity. Those spending patterns hold true for both overall health care and out-of-pocket spending by the individuals afflicted.
Similarly, the positive association between income/wealth and health status is well established. Much less is known, however, about the opportunity improving health can have on bettering socioeconomic status. To spark a much-needed discussion on that critically important question, we attempt here to address another: What effect does the onset of a chronic illness have on an individual’s income?
Having more comprehensive answers to inform policy discussions about both health care spending and individual income growth opportunity in America is critically important. As described below, the onset of a chronic condition has a significant and lasting negative effect on individual income. Given the high prevalence of chronic conditions among working-age adults in America, these income losses affect most U.S. families and generate substantial losses to the economy overall.
Prevalence Of Chronic Conditions High Among Working-Age Adults
Today, more than half of all Americans have at least one chronic condition, and many have two or more. In fact, nearly one in two working-age adults aged 45-64 have more than one chronic condition. Even among younger adults, nearly one in five 18-44 year olds have more than one chronic condition. The first onset of a chronic condition among working-age adults occurs on average at age 44, during prime working years.
The high prevalence of chronic conditions is costly both in terms of medical spending and economic loss. Researchers estimate that 86 cents of every dollar the U.S. spends on health care goes to treating people with one or more chronic condition.
Overall economic costs are also high. A new economic model developed by IHS Life Sciences estimates that 12 chronic conditions and 17 different cancers will cost the U.S. economy more than $790 billion a year in productivity and other losses. The size of these macroeconomic impacts implies a significant effect on individual income, as well, that bears quantification.
Estimating The Costs Of Chronic Conditions On Individuals
There are different approaches to estimating the impact of chronic disease burden, particularly at the population level. For example, the Disability-Adjusted Life Year (DALY) measures the burden of disease by estimating the number of years lost from poor health, premature death, and disability at a population level. By assigning a dollar value to each DALY, one could estimate burden of disease costs from poor health across a population such as a state or the nation overall. That cost burden would include economic losses to society as a whole and would not be limited to lost income for the individual affected, however.
To more closely estimate the impact on individual income, in 2013 health economist YoonKyung Chung utilized the Panel Study of Income Dynamics (PSID) data source to estimate the immediate and longer term impact of chronic condition onset on income for male wage earners aged 25-65. The analysis excluded female workers to limit challenges presented by workforce dynamics unrelated to health, such as reducing hours or leaving the workforce after the birth of a child.
The analysis found that onset of a chronic condition has a substantial and robust negative impact on individual earnings. In fact, earnings dropped by 12 percent at the time of onset. This negative effect on income not only persisted over time, but also increased to 18 percent in the long run.
Accordingly, for a middle-income wage earner making $50,000 a year, the onset of a chronic illness would lower annual income by $6,000 during the year of onset and by $9,000 a year, longer term. Reducing working hours rather than leaving the job market altogether were found to be the primary driver of lost income, raising additional questions about the impact on hourly versus salaried workers.
According to the model developed by IHS Life Sciences, the costs of missed days of work due to chronic illnesses will average nearly $200 billion a year 2016-2030. Those costs are born by both employers for workers with paid sick leave and by the workers themselves where sick leave is not offered or the worker exceeds the paid sick leave allowed.
In addition, increased spending on medical care that is associated with chronic conditions drives substantial economic costs and financial hardship to the individual. On average, people with one chronic condition incur more than double the amount of annual medical spending and out-of-pocket costs compared to peers with no chronic conditions.
In fact, people with chronic conditions incur both higher total medical spending and spend more out of pocket on medical care. For each chronic condition present, a person incurs approximately an additional $2,000 in medical spending overall and pays an additional $250 out-of-pocket. Both medical spending overall and that spent out-of-pocket by the consumer more than doubled for people with one chronic condition compared to their peers with none.
Table 1
Source: Multiple Chronic Conditions Chartbook, 2014, AHRQ.
Work To Be Done
A better understanding of the economic burden that chronic illness onset places on individual welfare is essential to informing policies addressing stagnant income growth in America. The estimated 12 percent first-year decline in income with the onset of chronic illness and sustained 18 percent decline over time are not trivial. In context, the highest annual wage growth rate American workers have experienced since 1960 was 13.77 percent in 1979. Given the high and rising prevalence of chronic conditions among working-age adults, policies aimed at income growth that do not account for the sizable negative income effect of chronic illness onset could see their efforts thwarted.
These results should raise serious questions about how we currently define value when evaluating the benefits of enhancing health. Traditionally, evaluations only value health improvements in terms of costs and offsets in medical spending when considering the value generated. Though some analyses on chronic disease burden also include economic losses from missed work or lowered productivity, those estimates are done from the perspective of the employer and likely miss the depressive effect on individual income.
Given the valid focus on generating wealth in America, particularly aimed at middle and lower income levels, understanding and accounting for the economic pressure the onset of chronic illness exerts on incomes is critical to success.
Many important questions come to mind:
- What are the short- and long-term effects on family income?
- Are the effects different for female wage earners?
- How do the effects differ across chronic conditions? Among income levels? Among the type of job skills required?
Clearly, more research is needed to understand and accommodate the interdependency between building wealth and enhancing health in America in policy development.