Do changes in unemployment insurance affect healthcare costs?

Public debate on unemployment insurance typically centres on employment effects, job-search incentives, and benefit expenditure. Far less attention is paid to healthcare impacts, even though the two systems are closely linked. Unemployment adversely affects health, and health in turn shapes employment prospects. It follows that changes in unemployment insurance may also affect the utilisation of healthcare services. Apparent fiscal savings may prove illusory if reduced income or increased stress delay care-seeking and exacerbate health problems. To assess the full welfare and budgetary consequences of social policy reforms, unemployment insurance and healthcare systems must be studied not only in isolation but also in relation to one another.

Why consider unemployment insurance in the context of healthcare?

An extensive interdisciplinary literature shows that unemployment is associated with deteriorations in both mental and physical health. This is not merely a matter of individual well-being. The health of the working-age population has direct implications for public finances. In the Nordic countries, the public sector finances both unemployment insurance and healthcare, mainly through taxation.

Healthcare in Finland and Sweden is also heavily subsidised. In Sweden, for example, out-of-pocket payments accounted for only around one per cent of total inpatient (hospital) care costs in 2016 (OECD 2019). Even modest changes in healthcare utilisation may therefore have meaningful fiscal consequences. It is thus important to examine whether the generosity of unemployment insurance affects healthcare demand in practice.

What does recent research tell us?

In my recent study, I address these questions using comprehensive Swedish administrative register data (Päällysaho 2026). The analysis is based on approximately 340,000 unemployment spells between 2007 and 2014, linked to inpatient care, outpatient specialist care and prescription drug expenditure.

The empirical strategy exploits the benefit cap in Sweden’s earnings-related unemployment insurance scheme. Using a regression kink design, I compare individuals located just below and just above the earnings threshold at which benefits cease to increase proportionally with prior wages. Because individuals around this threshold are otherwise very similar, the design allows for the identification of the causal effect of marginal changes in benefit generosity on healthcare utilisation. The method is particularly well suited to analysing small policy adjustments, such as incremental increases or reductions in benefit levels, which are the most common forms of reform in practice.

The findings are consistent and precisely estimated. Marginal changes in the level of earnings-related unemployment insurance have no detectable effect on healthcare utilisation — neither on hospital care, specialist services nor prescription drug use. No effects emerge for any subgroup — not by age, gender, household status, mental health diagnoses or chronic conditions. It is important to emphasise, however, that this research design does not allow for conclusions to be drawn about the consequences of large-scale reforms that alter the earnings-related benefits system substantially.

No evidence of an effect in Sweden — why should we still investigate?

In the Nordic welfare model, access to healthcare is only weakly dependent on income. When services are heavily subsidised, and user charges are modest, marginal changes in unemployment insurance generosity may not translate into changes in healthcare use. This institutional context likely explains the absence of measurable effects in the Swedish data.

Nevertheless, the absence of an effect is itself informative. The fiscal implications of unemployment insurance cannot be assessed solely through labour market responses or changes in benefit expenditure, because health — and the healthcare costs that arise from it — constitute an important but often overlooked part of the overall picture. When either social security or healthcare systems are reformed, spillovers across these systems may arise.

Evidence from international studies

Evidence from other countries suggests that institutional context matters. Studies from the United States and Austria have documented links between the generosity of social insurance and healthcare utilisation, prescription drug consumption and even mortality. In systems where individuals bear a larger share of healthcare costs, changes in income may more directly influence care-seeking behaviour. The effects of unemployment insurance are therefore not universal but highly system-specific.

In Finland, we are particularly well placed to conduct this type of research. High-quality administrative registers allow detailed linkage of social security and healthcare data, enabling a more complete assessment of their interaction than is possible in many other countries. For example, the Swedish data used in my study did not include primary care visits, which account for a substantial share of total healthcare expenditure. Finland’s data infrastructure enables us to analyse these dynamics in greater depth.

Towards a more integrated approach to policymaking

If we are to understand the consequences of social security reforms comprehensively, social security and healthcare must be considered together. These systems are intertwined, each shaping the fiscal and welfare effects of the other. Because these effects are system-dependent, Finnish policymaking cannot rely solely on literature reviews of international studies. With high-quality register data at our disposal, we have the opportunity to base policy decisions on robust empirical evidence rather than assumptions.