The Fiscal Costs of a Public Health Crisis: Lessons From Zika in the United States

OBJECTIVES: To study the fiscal impact of an imported disease outbreak on public health insurance programs, government finances, and intergovernmental transfers.

METHODS: We focus on the Zika virus outbreak, a public health emergency in the U.S. in 2016, and use nationwide county-level data from multiple sources on social insurance transfers, fiscal outcomes, confirmed Zika cases, and county characteristics between 2010 and 2019 with difference-in-differences and event study identification strategies to examine the dynamic impacts on government spending, intergovernmental grants, and public health and welfare programs.

RESULTS: We find that the Zika virus outbreak led to a reduction in public medical assistance transfers in exposed counties compared to non-exposed ones. Two contradicting mechanisms drive this impact: women postponing or forgoing pregnancy and an increased demand for diagnostic tests and treatment services, with the former dominating over the latter. Our results indicate a surge in Medicare reimbursement per enrollee during the peak of the outbreak, likely due to Medicare Part B covering clinical diagnostic laboratory tests for the Zika virus. We show heterogeneous effects of the outbreak on public medical transfers by geographic area, county demographics, and State Medicaid generosity. We find no evidence of the outbreak affecting overall expenses, revenues, or subcategories of expenses and revenue for county governments. Nevertheless, areas with high rates of local transmissions, such as Florida and Texas, experienced a notable increase in public health and welfare expenditures, accompanied by a rise in intergovernmental grants provided by federal and state governments to the affected counties.

CONCLUSIONS: Our analyses provide a comprehensive understanding of the roles played by different government levels and social safety net programs in response to disease outbreaks. We show that the increased costs associated with public health insurance programs are of economic significance compared to the direct costs of preventing the spread of the virus.