Wellington 27 th August 2014 Martin McKee London School of Hygiene amp Tropical Medicine and European Observatory on Health Systems and Policies with thanks to Marc Suhrcke Twitter ID: 566604
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Slide1
Health and wealth: the argument for investment
Wellington, 27th August 2014Martin McKeeLondon School of Hygiene & Tropical Medicine andEuropean Observatory on Health Systems and Policies(with thanks to Marc Suhrcke)
Twitter: @
martinmckeeSlide2
“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”Slide3
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 healthSlide4
“.....the time is ripe for ourmeasurement system to shift emphasis from measuring economic production tomeasuring people’s well-being.”
4Slide5
...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, andHow we measure themThere is a strong economic case for investment in health but it is nuancedThe better we are able to understand and communicate that nuance, the more credibly we can present our caseSlide6
Three sets of relationshipsSlide7
The easy bits
Wealthy people (and countries) can make healthier choicesGreater wealth provides more money to spend on health systems (if you chose to do so)
1
2Slide8
Wealth health
HealthWealthSlide9
Does better health increase wealth and/or reduce future health care costs?
?
?Slide10
Some basics: How can we conceptualise “economic costs and benefits”?
Health care costsProductivity costsMicroeconomic costsMacroeconomic costsCosts of losing the value of years of lifePublic-policy relevant and irrelevant costsSlide11
1) Health care costs Does improved health
reduce health care costs? (or, put another way) Does ill health increase health care costs?)Slide12
Direct costs of cardiovascular disease (EU15, 2002)
Source: Petersen et al (2005)Slide13
Additional per capita cost associated with obesity, ageing, smoking, and drinking (US, 1998)
Source: Sturm (2002)Source: Sturm (2002)
Obese
Smoking (current)
Problem drinkingSlide14
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?Slide15
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
DECREASESlide16
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; andsome 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. 2009Slide17
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 2008Slide18
Fortunately, saving health care costs is not a sensible criterion for judging the true economic value of health!Slide19
2) Productivity costsMicroeconomic
MacroeconomicMore relevant economic cost categories……but challenging to assess empirically ( causality?)Slide20Slide21
ECONOMY
HEALTH
Labour Supply
Labour Productivity
Education
Saving
Productivity costs:
micro
economic Slide22
Commission on Macroeconomics and Health
Better health promotes economic growth in poor countriesSlide23
Physical work is much less important in generating wealth
High and middle income countries are differentSlide24
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 healthDifferential effectsBlack males more likely to drop out of labour force or cut hoursWhite males more likely to cut hourly rates US (1974): people at age around 50 earn 20-30% less if certain diseases in past 10 yearsEffects vary according to diseaseUS (1967-77): older people earn 20% less if illness in past 10 yearsSlide25
The impact of health on wages and earnings
UK (2004): People in excellent (vs less than excellent) health increases hourly wages by ~ £1Sweden (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 30sUS (1986): Episode of mental illness reduces wages by 24% and effect persists for at least 15 yearsSlide26
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% lessWomen 52% lessGermany (1998): Suffering a “health shock” reduced probability of working in subsequent years5.3% less in next year17.5% less after 2 yearsSlide27
The impact of health on labour supply
Early retirementThose in poor health tend to retire 1-3 years earlierLong term health problem beginning at 55 reduced age at retirement by 2.8 yearsHeart attack or stroke affecting daily activities after age 50 increased probability of early retirement by 42%Slide28
Impact of health on educationHuman 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 rateThis is confirmed in low income countriesDeworming, iron supplementation, supplementary nutrition all increase attendanceLess work in high income countriesSlide29
Research from high income countriesVery 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 depressionAsthma does not seem to affect school performance.Slide30
The impact of health on labour supply of carers
Men caring for sick wives likely to leave labour forceWomen caring for sick husbands more likely to join labour force30Slide31
Impact of health on savingsTheory 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 thisThis is confirmed in low income countriesInsufficient evidence from high income countriesSlide32
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)Slide33
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 2006Slide34
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 health30% 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)Slide35
A quantitative example:CVD and economic growth
26 high-income countries1960-2000 in 5-year intervalsDependent variable: per capita incomeExplanatory variables:Initial income per capitaSecondary schoolingOpenness of the economyHealth proxy: cardiovascular disease mortality rate at working ageSlide36
“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 2009Slide37
The potential
for longevity gains to increase labour force participation and the working age populationHowever, much depends on when people retireWhat if “working age” – typically defined as age 15-64 – increased in line with longevity gains?37Slide38
Percentage of population aged 55-64 still in work, 2007Slide39
Predicted size of the EU15 working-age population with and without adjustment of upper working-age limit
Source: Oliveira-Martins et al (2005)Slide40
3) “value of life” costs
Costs of ill health through life foregone exceed any of the narrow cost concepts presented so far!Health care costsProductivity costs
Value of life
costs
How much do people value health & life?
How to measure such non-market goods?Slide41
The value of a statistical lifeOil platform workers and miners have an increased risk of death
The probability of losing x years of life can be determinedThey are paid more (£y) to compensate for thisValue of a statistical life = £y/xSlide42
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. 2008Slide43
‘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%Slide44
4) Public-policy relevant
and public-policy irrelevant costsWhen do “costs” justify public policy intervention?Slide45
“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, 6/03/2003
on WHO’s Framework Convention on TobaccoSlide46
Market failures in health?
External costsInsufficient informationMyopia, irrationalityTime-inconsistent preferences / ‘internalities’Slide47
Cost of smoking caused by a 24-year old
smoker in the USSource: 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
$40Slide48
48
The questionsThe answersGeneral taxationMake sure that:Diseases are prevented from occurringTreatment provided is timely and effective“Fully engaged” health systemWhat is the best way to pay for health care?How can we minimise the growth in expenditurePreventing future costs
The Wanless Report:UK Treasury (not Department of Health!)Slide49
The potential impact
Fully engaged = major commitment to health improvementSource: Wanless Report
}
€50 bn
Anticipating the future: Projections of future expenditure on UK NHS under three scenariosSlide50
Can health systems promote economic development?
?Slide51
There are different ways of spending moneyIssue a single call for tenders, for the whole thing (construction, furniture, technology ….)
A handful of global companies have the capacity to bidIn fact, they can probably lift the bid documents off the shelfProfits will be repatriated, supplies will be sourced from abroad, and local economy will get little benefitIf project fails, contractor will walk awayDivide project into smaller tranchesLocal small and medium enterprises can bidLocal employment will increaseHealth of local population will improveContractors will be there when you need them51So you want to build a new hospital?Slide52
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 fundsSlide53
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 1.6So maybe increased government spending would actually make things better?Slide54
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):43Slide55
Towards a virtuous circle?Slide56
Analysing
HealthSystems and Policies
Thank you for your attention