March 14, 2017 Issue
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Study Shows Sudden Debt Causes Spike in Mortality Rates

Study Shows Sudden Debt Causes Spike in Mortality Rates

While disagreements about how to pay for healthcare in America and simultaneously build a strong economy play out in the media, two CLAS researchers are discovering ties between financial health and physical well-being. In order to better understand how macro-scale economic factors can impact micro-scale human health and mortality, Associate Dean and Economics Professor Laura Argys and Economics Assistant Professor Andrew Friedson dove into financial data.

Argys and Friedson's new study (in collaboration with Federal Reserve Economist M. Melinda Pitts) shows a direct link between individual financial strain and increased risk of death, a finding with potentially major implications for both economic and health care policy. Argys, Friedson and Pitts found that bad credit and severely delinquent debt lead to higher individual mortality risks. The study, was released recently as a working paper by the Federal Reserve Bank of Atlanta.

To better understand the connection between debt and death, the three economists examined anonymous credit histories from 2011-2015, maintained by the Federal Reserve. The data are a nationally representative random sample of U.S. consumers with credit reports and contain objective measures of individual financial wellbeing as well as information on whether or not the individual is alive. They examined changes in debt and mortality in the 2010s that are attributable to the financial crisis preceding the Great Recession. "Our research sheds light on the extent to which macroeconomic shocks, like the great recession and the mortgage crises, adversely impact individual health," said Argys. "Debt resulting from the financial crisis has had lasting effects on health that are substantial enough to increase mortality rates."

The study showed that individuals with better credit or smaller amounts of delinquent debt had a lower probability of death at any given point in time than those with worse personal finances. The researchers also found that when an individual's credit score improved by 100 points, his mortality risk declined by more than 4 percentage points. Argys, Friedson and Pitts further found that the impact of delinquency is most pronounced in the short-term, as individuals are far more likely to die as a result of an immediate debt shock than in response to lingering debt.

Argys says, "Looking at how hard hit people were by the mortgage crisis and the resulting variation in their debt from before to after the great recession—effectively the aftershock ripples in debt—we could determine the impacts on health."

The research indicates that macro- and micro-economic policies implemented during an economic downturn are important to improve short-term wellbeing and also have long-term public health consequences. "Results from this study have important policy implications," said Friedson. "One of those is that any policy that has an impact on individual financial wellbeing also has an impact on individual health. That means economic policy is, by extension, health policy." In other words, with enough data researchers can now analyze how responses to economic policy (whether aimed directly at human health or not) have "health spillovers." Future researchers will now be able to see how events that influence people's wallets carry over to influence their lifespans as well.

In order to control for reverse causality—the suggestion that bad health causes debt—Argys, Friedson, and Pitts had to find a way to analyze the data to control for common events such as ill health, that can cause both debt and death. They used instrumental variables techniques (a way to artificially create experiment-like variation in data) to control for those factors. With data on mortgage defaults measured down to particular postal codes, Argys, Friedson, and Pitts could look at the mortgage crisis and determine how much the loss in value of property (a very sudden financial shock) could statistically affect financial wellbeing and mortality down the road.

"If you study a subject like this, the idea is that you need to know if the causation is going the correct way," Friedson says. "If I'm tracking debt and health, I could see a run up of debt and then I could see death, and both could be because of an illness. And that's the story we really thought hard about with this study. But by setting up our analysis the way we did we were able to rule out the story that it's illness or something other than bad debt that is causing this particular chain of events," says Friedson.

Later in 2017, Argys and Friedson's analysis of this same data set will expand to include a paper on how losing Medicaid affects an individual's credit score. Friedson says, "There have been a lot of papers recently in widely read economics journals that find that when you expand programs to people and you look at people's financial out comes, credit scores look better and debt looks better. These programs can help lift people out of financial distress. It is important to understand whether losing health insurance has a similar negative effect on financial well-being."

"We need to start thinking about policies as two tiered," says Friedson. "Any government program that works to improve individuals' financial wellbeing may also be impacting health outcomes. We are always asking 'what is the impact on people's financial wellbeing?' but we could be asking more. Anything that is going to be able to help people financially could potentially have positive health impacts as well."

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