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

Abstract

How do public health crises affect public health spending at different levels of government in a federal system? This study shows that small outbreaks of communicable diseases can have sizeable fiscal impact on federal and state governments through public health insurance and intergovernmental grants. We examine the case of the Zika virus outbreak in the United States using nationwide county-level data from 2010 to 2019. Our event study and difference-in-differences estimates show that public medical assistance transfers immediately increased in areas with a higher likelihood of local transmissions but gradually decreased in counties with a larger share of reproductive-age women or Hispanic population. Medicare reimbursement to the elderly increased temporarily, coinciding with the federal decision to cover diagnostic tests under Medicare. The Zika outbreak also increased county government spending on health and welfare in Florida and Texas, much of which was financed by intergovernmental transfers.