Health and wealth: the argument for investment

Wellington, 27th August 2014

Martin McKeeLondon School of Hygiene & Tropical Medicine andEuropean Observatory on Health Systems and Policies

(with thanks to Marc Suhrcke) Twitter: @martinmckee

“Beyond its intrinsic value, improved health contributes to social well-being through its impact on economic development, competitiveness and productivity. High-performing health systems contribute to economic development and health”

EU Health Strategy“Together for Health: A Strategic Approach for the EU 2008-

2013”

• Fundamental principles for EC action on health:

1) A strategy based on shared health values2) "Health is the greatest wealth“3) Health in all policies (HIAP)4) Strengthening the EU's voice in global health

“.....the time is ripe for ourmeasurement system to shift emphasis from measuring economic production tomeasuring people’s well-being.”

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...but what is the evidence behind the Health is Wealth story?

• The economic consequences of health depend on:– What precisely we mean by economic consequences

/costs, and– How we measure them

• There is a strong economic case for investment in health but it is nuanced– The better we are able to understand and communicate

that nuance, the more credibly we can present our case

Three sets of relationships

The easy bits

1. Wealthy people (and countries) can make healthier choices

2. Greater wealth provides more money to spend on health systems (if you chose to do so)

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2

Wealth healthH

ealth

Wealth

Does better health increase wealth and/or reduce future health care costs?

?

?

Some basics: How can we conceptualise “economic costs and benefits”?

1) Health care costs2) Productivity costs

a) Microeconomic costsb) Macroeconomic costs

3) Costs of losing the value of years of life4) Public-policy relevant and irrelevant costs

1) Health care costs

• Does improved health reduce health care costs? (or, put another way)

• Does ill health increase health care costs?)

Direct costs of cardiovascular disease (EU15, 2002)

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UK

Sweden

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Austria

Finlan

d

Denm

ark

Italy

Belgium

Franc

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Greec

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Irelan

d

Spain

Portu

gal

0

50

100

150

200

250

300

350

400

450

0

2

4

6

8

10

12

14

16

18

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Co

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ita

(€

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Source: Petersen et al (2005)

Additional per capita cost associated with obesity, ageing, smoking, and drinking

(US, 1998)

Source: Sturm (2002) Source: Sturm (2002)

Obese

Smoking (current)Problem drinking

However…

• Those with unhealthy lives may cost more each year, but they live for fewer years

• What is the cost of the extra years lived by those who are healthy?

How improved health could affect lifetime health care costs?

Less disease and disability at a given point in time, for a given population, or at a given age

DECREASE

Additional life years INCREASE

Higher long term care costs of dying at older ages

INCREASE

Bottom line effect ??

Lower acute health care costs of dying at older ages

DECREASE

Return on investment (US data)

• Investment of US$10 per person per year for ‘proven community-based disease prevention programs (on) physical activity, nutrition, and (reducing tobacco use can lead to reductions of:– type 2 diabetes and high blood pressure by 5% in 1 to 2 years;– heart disease, kidney disease and stroke by 5% in 5 years; and– some forms of cancer, COPD and arthritis by 2.5% in 10 to 20

years.

• This yields net savings of almost US$18 annually, a return on investment of 6.2 for every US$1 invested.

Source: Trust for America’s Health. Prevention for a healthier America: investments in disease prevention yield significant savings, stronger communities. 2009

Does a healthy lifestyle save health care expenditures? Data from The Netherlands

Healthy living

Obese Smokers

Life expectancy at age 20 (years) 64.4 59.9 57.4

Expected remaining lifetime health care costs per capita at age 20

€281,000 €250,000 €220,000

Cost per additional year

€6,889 €8,714

Source: van Baal et al 2008

Fortunately, saving health care costs is not a sensible criterion for judging the true economic value of health!

2) Productivity costs

a) Microeconomicb) Macroeconomic

More relevant economic cost categories… …but challenging to assess empirically

( causality?)

ECONOMYHEALTH

Labour Supply

Labour Productivity

Education

Saving

Productivity costs: microeconomic

Commission on Macroeconomics and Health

• Better health promotes economic growth in poor countries

Physical work is much less important in generating wealth

High and middle income countries are different

The impact of health on productivity (proxied by wages and earnings)

• US (1967): People in poor health earned 6.2% less than those in good health– Differential effects

• Black males more likely to drop out of labour force or cut hours

• White males more likely to cut hourly rates

• US (1974): people at age around 50 earn 20-30% less if certain diseases in past 10 years– Effects vary according to disease

• US (1967-77): older people earn 20% less if illness in past 10 years

The impact of health on wages and earnings

• UK (2004): People in excellent (vs less than excellent) health increases hourly wages by ~ £1

• Sweden (2000): Women with work absence due to own health problem have significantly lower wages, while for child’s illness have no such loss.

• US (2004): Impact of serious illness in men greatest when in 40s, but for women if in 30s

• US (1986): Episode of mental illness reduces wages by 24% and effect persists for at least 15 years

The impact of health on labour supply

• Ireland (2003): Those with chronic illness or disability “severely” hampering daily activities less likely to work:– Men 61% less– Women 52% less

• Germany (1998): Suffering a “health shock” reduced probability of working in subsequent years– 5.3% less in next year– 17.5% less after 2 years

The impact of health on labour supply

• Early retirement– Those in poor health tend to retire 1-3 years

earlier– Long term health problem beginning at 55

reduced age at retirement by 2.8 years– Heart attack or stroke affecting daily activities

after age 50 increased probability of early retirement by 42%

Impact of health on education

• Human capital theory predicts that more educated individuals will be more productive, and obtain higher earnings

• Children with better health will have less absenteeism and lower dropout rate

• This is confirmed in low income countries– Deworming, iron supplementation, supplementary

nutrition all increase attendance• Less work in high income countries

Research from high income countries• Very good or better health in childhood associated with a third of a

year more in school• Major Illness before age 21 decreased education on average by 1.4

years.• negative effect on educational outcomes of smoking or poor

nutrition greater than that of alcohol consumption or drug use.• Signifi cant positive impact of physical exercise on academic

performance.• Obesity and overweight negatively associated with educational

outcomes.• Sleeping disorders hinder academic performance.• Very little research on effect of anxiety and depression• Asthma does not seem to affect school performance.

The impact of health on labour supply of carers

• Men caring for sick wives likely to leave labour force

• Women caring for sick husbands more likely to join labour force

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Impact of health on savings

• Theory predicts that improved health will increase savings (which are needed for investment in economy)

• Individuals have greater probability of reaching retirement and so will save for this

• This is confirmed in low income countries• Insufficient evidence from high income

countries

A quantitative example: Health & retirement in Europe

• European Community Household panel, eight waves (1994-2001), nine EU countries (older workers)

• Dependent variable: retirement (self-reported as such and all departures from labour force)

• Explanatory variables:– Health stock (composite measure indicating health relative to

someone of same age)

– Health shock (acute deterioration in health)

– Income / wealth, education, demographics (gender, cohabit, children at home)

Self-reported “retirement”

All departures from labour force

Health stock -13% -17%

Health shock:

small 0% +14%

medium +44% +50%

large +47% +106%

A one-unit change in the health measure leads to a change in the probability of retiring by x%

Source: Hagan/Jones/Rice 2006

The historical contribution of health to economic development

• Current levels of economic wealth in today’s high-income countries are to a substantial degree explained by past achievements in health

• 30% of income growth in UK between 1780 and 1980 due to better health & nutrition (Fogel, 1997)

• Similar findings of past century in 10 industrialised countries (Arora, 2001)

A quantitative example:CVD and economic growth

• 26 high-income countries• 1960-2000 in 5-year intervals• Dependent variable: per capita income• Explanatory variables:

– Initial income per capita– Secondary schooling– Openness of the economy– Health proxy:

cardiovascular disease mortality rate at working age

“A ten percent increase in CVD mortality rate among the working age population decreases the per capita income growth rate by about one percentage point.”

Source: Suhrcke/Urban 2009

The potential for longevity gains to increase labour force participation and the working

age population1) However, much depends on when people retire

2) What if “working age” – typically defined as age 15-64 – increased in line with longevity gains?

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Percentage of population aged 55-64 still in work, 2007

Predicted size of the EU15 working-age population with and without adjustment of

upper working-age limit

Source: Oliveira-Martins et al (2005)

3) “value of life” costs

• Costs of ill health through life foregone exceed any of the narrow cost concepts presented so far!

Health care costs

Productivity costs

Value of life costs

• How much do people value health & life? How to measure such non-market goods?

The value of a statistical life

• Oil platform workers and miners have an increased risk of death

• The probability of losing x years of life can be determined

• They are paid more (£y) to compensate for this

• Value of a statistical life = £y/x

Economic value of life expectancy gains from 1970-2003 in percentage of GDP

Austria 33%

Finland 32%

France 30%

Greece 29%

Ireland 34%

Netherlands 30%

Norway 31%

Spain 29%

Sweden 29%

Switzerland 30%

Turkey 38%

UK 31%

Source: Suhrcke et al. 2008

‘Full income’ – a broader perspective EU countries (1990-1998)

UK Sweden France Italy Spain

Increase in GDP per capita $6,000 $4,810 $5,200 $5,420 $5,180

Increase in total health income $4,108 $4,732 $3,302 $4,992 $4,498

Increase in health expenditure $630 $395 $676 $403 $506

Increase in health income attributable to health care $1,561 $1,478 $996 $1,325 $1,780

Return on health expenditure 148% 274% 47% 229% 252%

4) Public-policy relevant and public-policy irrelevant costs

• When do “costs” justify public policy intervention?

“The state has no business with your plate”

Financial Times, 3/09/2006

“If people want to be fat, smell like ashtrays and die early, let them.”

The Economist, 9/11/2006

“Intercontinental health nannying”

The Economist, 6/03/2003on WHO’s Framework Convention

on Tobacco

Market failures in health?

External costs

Insufficient information

Myopia, irrationality

Time-inconsistent preferences / ‘internalities’

Cost of smoking caused by a 24-year old smoker in the US

Source: Sloan et al 2004

Mean cost per smoker

Cost per pack

Private cost (to smoker)

$141,181 $32.78

Quasi-external cost (to household)

$23,407 $5.44

External cost (to society)

$6,201 $1.44

Total $170,789 $40

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• The questions • The answers

• General taxation

• Make sure that:– Diseases are prevented

from occurring– Treatment provided is

timely and effective• “Fully engaged” health

system

• What is the best way to pay for health care?

• How can we minimise the growth in expenditure

Preventing future costsThe Wanless Report:

UK Treasury (not Department of Health!)

The potential impact

Fully engaged = major commitment to health improvement

Source: Wanless Report

} €50 bn

Anticipating the future: Projections of future expenditure on UK NHS under three scenarios

Can health systems promote economic development?

?

There are different ways of spending money

• Issue a single call for tenders, for the whole thing (construction, furniture, technology ….)– A handful of global companies have the capacity to bid– In fact, they can probably lift the bid documents off the shelf– Profits will be repatriated, supplies will be sourced from abroad,

and local economy will get little benefit– If project fails, contractor will walk away

• Divide project into smaller tranches– Local small and medium enterprises can bid– Local employment will increase– Health of local population will improve– Contractors will be there when you need them 51

• So you want to build a new hospital?

Health systems wealth

Investment in health facilities in deprived areas can be a critical factor in facilitating inward investment

A key issue for EU structural funds

Investing in growth?

• Olivier Blanchard, Chief Economist of the IMF has recalculated the fiscal multiplier – the impact of additional spending on GDP growth

• Larger than previously thought – about 1.6• So maybe increased government spending

would actually make things better?

Where should we invest?

Reeves A, Basu S, McKee M, Meissner C, Stuckler D. Does investment in the health sector promote or inhibit economic growth? Globalization & and Health 2013; 23;9(1):43

Towards a virtuous circle?

Analysing HealthSystems and Policies

Thank you for your attention