The Impact of Air Pollution on Medical Expenditure: Evidence from Beijing

Abstract

We identify the contemporaneous effects of PM2.5 concentrations on medical costs in Beijing by analyzing two datasets: one detailing daily air quality indexes over a four-year period, and the other detailing individual-level records of all hospital visits and medical transactions under a government insurance program that covers most city residents. We find that both higher levels of air pollution and longer-lasting pollution episodes significantly increase daily hospital visits and medical expenditures. The elderly bear a disproportionately larger percentage of the increases in hospital treatments and expenditures, especially through out-of-pocket costs. Analysis of multiple-day pollution episodes shows that marginal health costs and marginal hospital visits start to increase significantly once high levels of air pollution continue for a second day. Our findings provide empirical evidence that the intensity and duration of air pollution are critical considerations in policy design.