Tansel Yilmazer, Assistant Professor, Consumer Sciences: Dr. Tansel Yilmazer, Assistant Professor, Consumer Sciences: Understanding The Impact Of Adverse Health Events On Household Consumption, Income And Wealth

A loss in labor income and an increase in out-of-pocket medical expenditures are two important costs of a major health problem that a household experiences. This study aims to link these costs to the potential changes in household wealth and consumption following an adverse health event. Using data from the Panel Study of Income Dynamics for years 1999-2009, we estimate the effect of a health condition experienced by the husband or the wife on their labor income and out-of pocket medical expenses. We then measure to what extent these costs are financed out of household wealth and consumption. We find that health conditions have significant consequences on household budgets by restricting the capacity to earn income and by increasing medical spending. While the decline in consumption expenditures following a health condition is small, households experience a major decline in wealth at a rate larger than the changes in total income and medical spending. Our findings also show that health insurance does not prevent the households from facing a significant decline in wealth and home equity following a severe health condition experienced by the husband.