Transcript Health and wealth: the argument for investment

Health and wealth: the argument for
investment
Wellington, 27th August 2014
Martin McKee
London School of Hygiene & Tropical Medicine and
European 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. Highperforming 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)
2)
3)
4)
A strategy based on shared health values
"Health is the greatest wealth“
Health in all policies (HIAP)
Strengthening the EU's voice in global health
“.....the time is ripe for our
measurement system to shift
emphasis from measuring economic
production to
measuring people’s well-being.”
4
...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)
1
health
Health
Wealth
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 costs
2) Productivity costs
a) Microeconomic costs
b) Macroeconomic costs
3) Costs of losing the value of years of life
4) 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?)
450
20
400
18
350
16
300
250
200
150
14
12
10
8
6
100
4
50
2
0
0
Source: Petersen et al (2005)
Cost in % of health exp.
Cost per capita (€)
Direct costs of cardiovascular disease
(EU15, 2002)
Additional per capita cost associated with
obesity, ageing, smoking, and drinking
(US, 1998)
Problem drinking
Smoking (current)
Obese
Source: Sturm (2002)
Source: Sturm (2002)
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
Additional life years
Lower acute health care costs of
dying at older ages
Higher long term care costs of dying
at older ages
 Bottom line effect
 DECREASE
 INCREASE
 DECREASE
 INCREASE
??
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
Life expectancy at
age 20 (years)
Expected
remaining lifetime
health care costs
per capita at age
20
Cost per
additional year
Source: van Baal et al 2008
Healthy
living
Obese
Smokers
64.4
59.9
57.4
€281,000
€250,000
€220,000
€6,889
€8,714
Fortunately, saving health care costs is
not a sensible criterion for judging the
true economic value of health!
2) Productivity costs
a) Microeconomic
b) Macroeconomic


More relevant economic cost categories…
…but challenging to assess empirically
( causality?)
Productivity costs:
microeconomic
Labour
Productivity
Labour Supply
HEALTH
Education
Saving
ECONOMY
Commission on Macroeconomics and Health
• Better health promotes
economic growth in
poor countries
High and middle income countries are
different
Physical work is much
less important in
generating wealth
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 2030% 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
30
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)
A one-unit change in the health measure leads to a
change in the probability of retiring by x%
Self-reported
“retirement”
All departures
from labour force
-13%
-17%
0%
+14%
medium
+44%
+50%
large
+47%
+106%
Health stock
Health shock:
small
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 population
1) 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
• How much do people
value health & life?
How to measure such
non-market goods?
Value of life costs
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?
“If people want to be fat, smell like ashtrays and
die early, let them.”
The Economist, 9/11/2006
“The state has no business with your plate”
Financial Times, 3/09/2006
“Intercontinental health nannying”
The Economist, 6/03/2003
on 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
Private cost (to
smoker)
Quasi-external
cost (to
household)
External cost (to
society)
Total
Source: Sloan et al 2004
Mean cost per
smoker
Cost per
pack
$141,181
$32.78
$23,407
$5.44
$6,201
$1.44
$170,789
$40
Preventing future costs
The Wanless Report:
UK Treasury (not Department of Health!)
• The questions
• What is the best way
to pay for health
care?
• How can we
minimise the growth
in expenditure
• The answers
• General taxation
• Make sure that:
– Diseases are prevented
from occurring
– Treatment provided is
timely and effective
• “Fully engaged” health
system
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The potential impact
Anticipating the future: Projections of future expenditure on
UK NHS under three scenarios
} €50 bn
Fully engaged = major commitment to health
improvement
Source: Wanless Report
Can health systems promote economic
development?
There are different ways of
spending money
• So you want to build a new hospital?
• 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
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Health systems
Investment in health
facilities in deprived
areas can be a critical
factor in facilitating
inward investment
A key issue for EU
structural funds
wealth
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?
Thank you
for
your attention
Analysing
Health
Systems and Policies