1. 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)

2. “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”

3. EU Health Strategy “Together for Health: A Strategic Approach for the EU 2008-2013”
Fundamental principles for EC action on health:
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

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

5. ...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
How do I see this work as of today.
Here i try to present that nuance.

6. Three sets of relationships

7. The easy bits
Wealthy people (and countries) can make healthier choices
Greater wealth provides more money to spend on health systems (if you chose to do so) 2 1

8. Wealth health
Health
Wealth

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

10. Some basics: How can we conceptualise “economic costs and benefits”?
Health care costs
Productivity costs
Microeconomic costs
Macroeconomic costs
Costs of losing the value of years of life
Public-policy relevant and irrelevant costs

11. 1) Health care costs
Does improved health reduce health care costs? (or, put another way)
Does ill health increase health care costs?)

12. Direct costs of cardiovascular disease (EU15, 2002)
Source: Petersen et al (2005)

13. Additional per capita cost associated with obesity, ageing, smoking, and drinking (US, 1998)
Problem drinking
Smoking (current)
Obese
Source: Sturm (2002)
Source: Sturm (2002)

14. 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?

15. 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
Lower acute health care costs of dying at older ages
 DECREASE
Higher long term care costs of dying at older ages
 INCREASE
 Bottom line effect ??

16. 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

17. Does a healthy lifestyle save health care expenditures
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

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

19. 2) Productivity costs Microeconomic Macroeconomic
More relevant economic cost categories…
…but challenging to assess empirically ( causality?)

20. 20

21. Productivity costs: microeconomic
Labour Productivity
Labour Supply
HEALTH
ECONOMY
Education
Saving

22. Commission on Macroeconomics and Health
Better health promotes economic growth in poor countries

23. High and middle income countries are different
Physical work is much less important in generating wealth

24. 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 % less if certain diseases in past 10 years
Effects vary according to disease
US ( ): older people earn 20% less if illness in past 10 years

25. 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

26. 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

27. 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%

28. 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

29. 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.

30. 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

31. 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

32. A quantitative example: Health & retirement in Europe
European Community Household panel, eight waves ( ), 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)

33. Self-reported “retirement” All departures from labour force
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
Health stock
-13%
-17%
Health shock:
small 0%
+14%
medium
+44%
+50%
large
+47%
+106%
Source: Hagan/Jones/Rice 2006

34. 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)

35. A quantitative example: CVD and economic growth
26 high-income countries
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

36. “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

37. The potential for longevity gains to increase labour force participation and the working age population
However, much depends on when people retire
What if “working age” – typically defined as age – increased in line with longevity gains?

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

39. Predicted size of the EU15 working-age population with and without adjustment of upper working-age limit
Source: Oliveira-Martins et al (2005)

40. 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

41. 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

42. Economic value of life expectancy gains from 1970-2003 in percentage of GDP
Austria
33%
Finland
32%
France
30%
Greece
29%
Ireland
34%
Netherlands
Norway
31%
Spain
Sweden
Switzerland
Turkey
38% UK
Source: Suhrcke et al. 2008

43. ‘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%

44. 4) Public-policy relevant and public-policy irrelevant costs
When do “costs” justify public policy intervention?

45. “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

46. Market failures in health?
External costs
Insufficient information
Myopia, irrationality
Time-inconsistent preferences / ‘internalities’
I focus only on the first potential market failure.

47. Cost of smoking caused by a 24-year old smoker in the US
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
Source: Sloan et al 2004

48. What is the best way to pay for health care?
Preventing future costs The Wanless Report: UK Treasury (not Department of Health!)
The questions
The answers
What is the best way to pay for health care?
How can we minimise the growth in expenditure
General taxation
Make sure that:
Diseases are prevented from occurring
Treatment provided is timely and effective
“Fully engaged” health system

49. } The potential impact €50 bn
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

50. Can health systems promote economic development?

51. 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

52. 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

53. 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?

54. 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

55. Towards a virtuous circle?

56. Analysing Health Systems and Policies
Thank you for your attention
Analysing Health Systems and Policies