On the modeling and estimation of health changes in the United States

In this paper, we model self-assessed health, and quantify its uncertainty through a stochastic approach based on the framework from Lee and Carter (1992). We combine explanatory and extrapolative approaches by including macroeconomic factors (GDP and unemployment rate), and life-style related factors (alcohol and tobacco consumption) into the stochastic model for health dynamics. This leads to a significant improvement in the model fit, where a large part of the time trend in health can be attributed to the trends in the observed variables. These observed variables affect separate age groups differently. The backtesting analysis suggests that this approach is successful in terms of forecasting, especially when combining the latent variable and macroeconomic fluctuations. As one of the applications, this paper estimates and predicts life expectancy (LE) and healthy life expectancy (HLE), and quantifies (healthy) longevity risk.