Skip to main content

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

  • Michael R. Richards (a1) and Joachim Marti (a2)

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.

Corresponding author
*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:
Hide All
Allin, S., Bankauskaite, V., Dubois, H., Figueras, J., Golna, C., Grosse-Tebbe, S., Jemiai, N., McDaid, D., Riesberg, A., Schreyoegg, J. and Thomson, S. (2005), Snapshots of Health Systems, London, UK: EU Observatory WHO.
Anderson, G. (2007), ‘From ‘Soak the Rich’ to ‘Soak the Poor’: recent trends in hospital pricing’, Health Affairs, 26(3): 780789.
Anderson, G. F., Frogner, B. K. and Reinhardt, U. E. (2007), ‘Health spending in OECD countries in 2004: an update’, Health Affairs, 26(5): 14811489.
Atella, V., Brunetti, M. and Maestas, N. (2012), ‘Household portfolio choices, health status and health care systems: a cross-country analysis based on SHARE’, Journal of Banking & Finance, 36: 13201335.
Babiarz, P., Widdows, R. and Yilmazer, T. (2013), ‘Borrowing to cope with adverse health events: liquidity constraints, insurance coverage, and unsecured debt’, Health Economics, 22(10): 11771198.
Brawley, L. R., Rejeski, W. J. and King, A. C. (2003), ‘Promoting physical activity for older adults: the challenges for changing behavior’, American Journal of Preventive Medicine, 25(3, Supplement 2): 172183.
Breyer, F. and Felder, S. (2006), ‘Life expectancy and health care expenditures: a new calculation for Germany using the costs of dying’, Health Policy, 75(2): 178186.
Börsch-Supan, A. and Jürges, H. (eds) (2005), The Survey of Health, Ageing and Retirement in Europe – Methodology, Mannheim: MEA.
Cawley, J. and Meyerhoefer, C. (2012), ‘The medical care costs of obesity: an instrumental variables approach’, Journal of Health Economics, 31: 219230.
Chernew, M. E., Rosen, A. B. and Fendrick, A. M. (2007), ‘Value-based insurance design’, Health Affairs, 2: 195203.
Clark, A. and Etilé, F. (2002), ‘Do health changes affect smoking? Evidence from British panel data’, Journal of Health Economics, 21: 533562.
Dave, D. and Kaestner, R. (2009), ‘Health insurance and ex ante moral hazard: evidence from Medicare’, International Journal of Health Care Finance and Economics, 9: 367390.
De Nardi, M., French, E. and Jones, J. B. (2010), ‘Why do the elderly save? The role of medical expenses’, Journal of Political Economy, 118(1): 3975.
Demark-Wahnefried, W., Aziz, N. M., Rowland, J. H. and Pinto, B. M. (2005), ‘Riding the crest of the teachablem: promoting long-term health after the diagnosis of cancer’, Journal of Clinical Oncology, 23(24): 58145830.
Docteur, E. and Oxley, H. (2003), ‘Health-cares: lessons from the reform experience’, OECD Health Working Papers, 9: 197.
Ehrlich, I. and Becker, G. S. (1972), ‘Market insurance, self-insurance, and self-protection’, Journal of Political Economy, 80(4): 623648.
Falba, T. (2005), ‘Health events and the smoking cessation of middle aged americans’, Journal of Behavioral Medicine, 28(1): 2133.
Finkelstein, E. A., Cohen, J. and Dietz, W. (2009), ‘Annual Medical Spending Attributable to Obesity: Payer- and Service-Specific Estimates’, Health Affairs (web exclusive), 28(5): w822w831.
Fuchs, V. R. (1999), ‘Health care for the elderly? How much? Who will pay for it?’, Health Affairs, 18(1): 1121.
Grembowski, D., Patrick, D., Diehr, P., Durham, M., Beresford, S., Kay, E. and Hecht, J. (1993), ‘Self-efficacy and health behavior among older adults’, Journal of Health and Social Behavior, 34: 89104.
Jappelli, T., Pistaferri, L. and Weber, G. (2007), ‘Health care quality, economic inequality, and precautionary saving’, Health Economics, 16: 327346.
Jha, P., Ramasundarahettige, C., Landsman, V., Rostron, B., Thun, M., Anderson, R. N., McAfee, T. and Peto, R. (2013), ‘21st-century hazards of smoking and benefits of cessation in the United States’, New England Journal of Medicine, 368(4): 341350.
Keeler, E. B., Sloss, E. M., Brook, R. H., Operskalski, B. H., Goldberg, G. A. and Newhouse, J. P. (1987), ‘Effects of cost sharing on physiological health, health practices, and worry’, Health Services Research, 22(3): 281306.
Keenan, P. (2009), ‘Smoking and weight change after new health diagnoses in older adults’, Archives of Internal Medicine, 169(3): 237242.
Khwaja, A., Sloan, F. and Chung, S. (2006a) ‘The effects of spousal health on the decision to smoke: evidence on consumption externalities, altruism, and learning within the household’, Journal of Risk and Uncertainty, 32: 1735.
Khwaja, A., Sloan, F. and Chung, S. (2006b) ‘Learning about individual risk and the decision to smoke’, International Journal of Industrial Organization, 24: 683699.
Koszegi, B. and Szeidl, A. (2013), ‘A model of focusing in economic choice’, Quarterly Journal of Economics, 128(1): 53104 (ahead of print).
Liaropoulos, L., Siskou, O., Kaitelindou, D., Theodorou, M. and Katostaras, T. (2008), ‘Informal payments in public hospitals in Greece’, Health Policy, 87(1): 7281.
Lim, S. S., Vos, T., Flaxman, A. D., Danaei, G., Shibuya, K. and Adair-Rohani, H., et al. (2012), ‘A comparative risk assessment of burden of disease and injury attributable to 67 risk factors and risk factor clusters in 21 regions, 1990–2010: a systematic analysis for the Global Burden of Disease Study 2010’, Lancet, 380(9859): 22242260.
Lorig, K. R., Sobel, D. S., Stewart, A. L., Brown, B. W. J., Bandura, A., Ritter, P., Gonzalez, V. M., Laurent, D. D. and Holman, H. R. (1999), ‘Evidence suggesting that a chronic disease self-management program can improve health status while reducing hospitalizations: a randomized trial’, Medical Care, 37(1): 514.
Meara, E., White, C. and Cutler, D. M. (2004), ‘Trends in medical spending by age, 1963–2000’, Health Affairs, 23(4): 176183.
Paccagnella, O., Rebba, V. and Weber, G. (2013), ‘Voluntary private health insurance among the over 50s in Europe’, Health Economics, 22(3): 289315.
Paez, K. A., Zhao, L. and Hwang, W. (2009), ‘Rising out-of-pocket spending for chronic conditions: a ten-year trend’, Health Affairs, 28(1): 1525.
Palumbo, M. G. (1999), ‘Uncertain medical expenses and precautionary saving near the end of the life cycle’, Review of Economic Studies, 66(2): 395421.
Rashad, I. and Markowitz, S. (2007), ‘Incentives in obesity and health insurance’, NBER Working Paper Series, 131.
Rice, D. P. and Fineman, N. (2004), ‘Economic implications of increased longevity in the United States’, Annual Review of Public Health, 25: 457473.
Richards, M. R. and Helmchen, L. A. (2013), ‘Adverse selection and moral hazard in the provision of clinical trial ancillary care’, Health Economics, Policy & Law, 8: 225234.
Schoen, C., Osborn, R., Squires, D., Doty, M. M., Pierson, R. and Applebaum, S. (2010), ‘How health insurance design affects access to care and costs, by income, in eleven countries’, Health Affairs, 29(12): 23232334.
Schoenbaum, M. (1997), ‘Do smokers understand the mortality effects of smoking? Evidence from the Health and Retirement Survey’, American Journal of Public Health, 87(5): 755759.
Schroeder, S. A. (2007), ‘We can do better – improving the health of the american people’, New England Journal of Medicine, 357: 12211228.
Siciliani, L. and Verzulli, R. (2009), ‘Waiting times and socioeconomic status among elderly Europeans: evidence from SHARE’, Health Economics, 18: 12951306.
Siskou, O., Kaitelindou, D., Papakonstantinou, V. and Liaropoulos, L. (2008), ‘Private health expenditure in the Greek health care system: where truth ends and the myth begins’, Health Policy, 88(2–3): 282293.
Smith, J. P. (1999), ‘Health bodies and thick wallets: the dual relation between health economic status’, Journal of Economic Perspectives, 13(2): 145166.
Smith, V. K., Taylor, D. H. J., Sloan, F. A., Johnson, F. R. and Desvousges, W. H. (2001), ‘Do smokers respond to health shocks?’, Review of Economics and Statistics, 83(4): 675687.
Sturm, R. (2002), ‘The effects of obesity, smoking, and drinking on medical problems and costs’, Health Affairs, 21(2): 245253.
Sundmacher, L. (2012), ‘The effect of health shocks on smoking and obesity’, European Journal of Health Economics, 13: 451460.
Thomson, S., Osborn, R., Squires, D. and Jun, M. (2013), ‘International profiles of health care systems, 2013’, C. Fund: Commonwealth Fund. Available at
Thorpe, K. E. (2005), ‘The rise in health care spending and what to do about it’, Health Affairs, 24(6): 14361445.
Viscusi, W. (1990), ‘Do smokers underestimate risks?’, Journal of Political Economy, 98(6): 12531269.
Weinstein, N. D. (1987), ‘Unrealistic optimism about susceptibility to health problems: conclusions from a community-wide sample’, Journal of Behavioral Medicine, 10(5): 481500.
Yach, D., Hawkes, C., Gould, L. and Hofman, K. J. (2004), ‘The global burden of chronic diseases: overcoming impediments to prevention and control’, Journal of the American Medical Association, 291(21): 26162622.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Health Economics, Policy and Law
  • ISSN: 1744-1331
  • EISSN: 1744-134X
  • URL: /core/journals/health-economics-policy-and-law
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 4
Total number of PDF views: 60 *
Loading metrics...

Abstract views

Total abstract views: 350 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 20th July 2018. This data will be updated every 24 hours.