The fiscal consequences of trends in population health.(Forum: America's Looming Fiscal Crisis)

The public burden of shifting trends in population health remains uncertain. Sustained increases in obesity, diabetes, and other diseases could reduce life expectancy--with a concomitant decrease in the public sector's annuity burden--but these savings may be offset by worsening functional status which increases health care spending, reduces labor supply, and increases public assistance. Using a health microsimulation model we quantify the competing public finance consequences of shifting trends in population health for medical care costs, labor supply, earnings, wealth, tax revenues, and government expenditures. We find that the trends in obesity and smoking have different fiscal consequences and that, because of its more profound effects on morbidity and health care expenditures, obesity represents a larger immediate risk from a fiscal perspective. Uncertainty in residual mortality improvements represents by far the largest risk. Keywords: disability, health care costs, social security, microsimulation JEL Codes: 110, 138, J26