Stock Worries Increase Hospital Admissions, Costs

No one likes to see their investments lose money, and research may have actually found a correlation between the movement of the stock market and hospital admissions to the tune of $650 million a year.

The 2013 study by University of California, San Diego, finance professors Joseph Engelberg and Christopher Parsons found that stock market gyrations could lead to an increase in hospital admissions, particularly for mental health disorders.

The investigators used three decades (1983-2011) of hospital admission data for the state of California to measure how quickly “stock market fluctuations impact investor psychology.” In particular, they looked for patients admitted for anxiety, panic disorder, manic depression and other mental health conditions. To compare, they formed two stock portfolios of returns relevant to California investors: a broad-based market index and an index of local companies.

The authors found that when the stock market fell almost 25% on “Black Monday” (Oct. 19, 1987), hospital admissions spiked by more than 5%. Despite the fact that half of those losses were reversed on Oct. 20, the researchers found neither a delayed effect nor a reversal.

“The first result indicates an immediate impact on the psychological states of investors; the second suggests an asymmetry, whereby the utility declines following market drops outweigh any utility gains after price run-ups,” Engelberg and Parsons wrote.

On average, the findings revealed that a 1.5% drop in stock prices increased overall admissions by 0.26% over the course of the next two days. When the researchers restricted the sample to psychological health conditions, then virtually the entire effect showed on the first day of the stock market’s gyration.

The speed at which investors are affected by stock market gyrations reveal that worries result from expectations over the future rather than current consumption or current budget constraints, the investigators explained.

Engelberg and Parsons wrote that stock market declines increased health care costs by at least $77 million in California alone (based on hospital admission increases following adverse stock market events, how many people in California are hospitalized daily and the cost of the average hospitalization). This can be extrapolated out to roughly $650 million annually in the entire country.

“Both in terms of novelty and economic substance, the immediacy of the result — stock market declines today result in psychological distress today — is the most significant aspect of our analysis,” Parsons and Engelberg wrote.