Health Economics, Policy and Law

Articles

Heterogeneity in the smoking response to health shocks by out-of-pocket spending risk

Michael R. Richardsa1 c1 and Joachim Martia2

a1 Postdoctoral Research Associate, Wharton School, Colonial Penn Center, Leonard Davis Institute of Health Economics, University of Pennsylvania, USA

a2 Lecturer in Health Economics, Leeds Institute of Health Sciences, University of Leeds, Academic Unit of Health Economics, UK

Abstract

An existing literature demonstrates that adverse changes to health can lead to improvements in health behaviors. Although the exact explanations for these empirical findings are debated, some posit that individuals learn about their true health risks through health shocks. Updated health risk information can then induce changes in health behaviors. While we follow a learning framework, we argue that past work has neglected the role of health insurance and medically related financial risk within this decision making context. Using longitudinal data from 11 European countries, we investigate the impact of a new cardiovascular (CV) health shock on smoking decisions among older adults and examine whether personal exposure to medical spending risk influences the smoking response. We then explore two potential mechanisms for this link: larger updates to health risk beliefs and higher medical expenditures to incentivize behavior change. We find that CV shocks impact the propensity to smoke, with relatively more impact among individuals with high financial risk exposure to medical spending. We also see larger increases in out-of-pocket expenditures following a shock for this group – consistent with the latter mechanism for behavior change.

(Received February 26 2014)

(Revised February 26 2014)

(Accepted March 19 2014)

(Online publication May 06 2014)

Correspondence

c1 Correspondence to: Michael R. Richards, Postdoctoral Research Associate, University of Pennsylvania, Wharton School, Leonard Davis Institute of Health Economics Colonial Penn Center, 3641 Locust Walk, Philadelphia, PA 19104 USA. Email: mirich@wharton.upenn.edu