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The Contribution of HealthThe Contribution of Health to the Economy to the Economy

in the European Unionin the European Union

Marc SuhrckeMarc SuhrckeMartin McKeeMartin McKee

Regina Sauto ArceRegina Sauto ArceSvetla TsolvaSvetla Tsolva

JJørgen Mortensenørgen Mortensen

Results of a study financed by EC DG SANCO

A collaboration between: London School of Hygiene & Tropical Medicine,Centre for European Policy Studies (Brussels),

World Health Organization (Venice)

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Better health Better health promotes promotes economic growth economic growth in poor countriesin poor countries

Have we made Have we made the case for health the case for health

in HIGH-income in HIGH-income countries?countries?

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Health has been acknowledged as a determinant of economic growth in low-income countries - …but not in high-income countries!!

The role of human capital in economic growth is widely acknowledged – …but only for education!

Health plays a very limited role in rich countries’ economic development strategies

(…)

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1.1. Aim of the studyAim of the study

2.2. Empirical evidenceEmpirical evidence

3.3. Policy implicationsPolicy implications

4.4. Was that it in terms of Was that it in terms of making the case for health?making the case for health?

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1. Aim of the study1. Aim of the study

…and of our related work in this …and of our related work in this areaarea

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1)Review the empirical evidence on the impact of health on the economy – as it is relevant for EU countries

2)Provide a rationale for placing health more firmly into the overall economic development strategies in EU countries

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2. Empirical evidence2. Empirical evidence

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The cost of illness:The cost of illness:Expenditure on coronary heart disease per Expenditure on coronary heart disease per 100,000 persons (GBP million, 1999 prices)100,000 persons (GBP million, 1999 prices)

02468

1012141618

Direct and social carecosts

Employment/ informalcosts

99

Relevant channels from health Relevant channels from health to the economy: a simple to the economy: a simple

frameworkframework

1010

Labour supply is low in the Labour supply is low in the EUEU

Total employment rate (age 15-64) in % of US level 2003

90.484.6

50

60

70

80

90

100

EU 15 EU 10

US = 100

Source: Eurostat

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Labour supply is particularly low Labour supply is particularly low in the EU among the elderlyin the EU among the elderly

Source: Eurostat

Employment rate in age group 55-64 in % of US level 2003

69.6

61.8

50

60

70

80

90

100

EU 15 EU 10

US = 100

1212

The impact of health on wages and earningsThe impact of health on wages and earnings

Poor health negatively impacts on Poor health negatively impacts on wages and earningswages and earnings

Physiological proxies for health Physiological proxies for health (height/ BMI) also associated with (height/ BMI) also associated with higher earnings (although possibly higher earnings (although possibly due to social meaning of these due to social meaning of these measures)measures)

Most work from US, relatively little Most work from US, relatively little from Europefrom Europe

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The impact of health on labour The impact of health on labour supplysupply

Good health increases probability of Good health increases probability of participating in labour forceparticipating in labour force

Good health reduces probability of Good health reduces probability of early retirementearly retirement

Health impacts on carersHealth impacts on carers• Men caring for sick wives likely to leave Men caring for sick wives likely to leave

labour forcelabour force• Women caring for sick husbands more Women caring for sick husbands more

likely to join labour forcelikely to join labour force

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Impact of health on Impact of health on educationeducation

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

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

This is confirmed in low income This is confirmed in low income countriescountries

Little work in high income countriesLittle work in high income countries

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Impact of health on savingsImpact of health on savings

Theory predicts that improved health Theory predicts that improved health will increase savingswill increase savings

Individuals have greater probability Individuals have greater probability of reaching retirementof reaching retirement

This is confirmed in low income This is confirmed in low income countriescountries

Insufficient evidence from high Insufficient evidence from high income countriesincome countries

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The impact of health on the The impact of health on the macroeconomymacroeconomy

The historical contribution of health The historical contribution of health to economic developmentto economic development

Cross-country studiesCross-country studies• Worldwide samplesWorldwide samples• High-income countries onlyHigh-income countries only

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The historical contribution of The historical contribution of health to economic health to economic

developmentdevelopment

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

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Cross country studies on the impact Cross country studies on the impact of health on income levels or income of health on income levels or income

growthgrowth Worldwide studies (including high-income countries)Worldwide studies (including high-income countries)

• Health enters as a very robust – indeed one of the most Health enters as a very robust – indeed one of the most robust – predictors of income and growthrobust – predictors of income and growth

• In some cases, health appears more important than In some cases, health appears more important than educationeducation

High-income countries onlyHigh-income countries only• Very few studiesVery few studies• Many use measures of health that fail to discriminate Many use measures of health that fail to discriminate

between high income countriesbetween high income countries• A new analysis looking at cardiovascular mortality shows A new analysis looking at cardiovascular mortality shows

substantial impact on economic growth in high income substantial impact on economic growth in high income countriescountries

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

Increase in GDP per capita $6,000 $4,810 $5,200 $5,420 $5,180Increase in total health income $4,108 $4,732 $3,302 $4,992 $4,498Increase in health expenditure $630 $395 $676 $403 $506Increase in health income attributable to health care $1,561 $1,478 $996 $1,325 $1,780Return on health expenditure 148% 274% 47% 229% 252%

2020

The contribution of health care The contribution of health care to the economyto the economy

The health sector is important simply The health sector is important simply because of its sizebecause of its size

Currently it accounts for about 7% of GDP Currently it accounts for about 7% of GDP in EU15 in EU15 • More than financial services or retail sectorMore than financial services or retail sector

About 9% of all workers in EU25 employed About 9% of all workers in EU25 employed in health sectorin health sector

Consequently, its performance will directly Consequently, its performance will directly impact on economic performance, and impact on economic performance, and indirectly on labour costs, flexibility, and indirectly on labour costs, flexibility, and allocation of resources in broader allocation of resources in broader economyeconomy

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In summary … Poor health impacts negatively on wages

and earnings Good health increases labour supply

through higher employment and later retirement

Evidence from low income countries shows beneficial impact on savings and education

GDP is an imperfect measure of performance. When health income is examined, there is a substantial positive return on investment in health care

The health sector is an important element of the economy in its own right

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3. Policy implications3. Policy implications

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1)1) Demonstrating previously unrecognised Demonstrating previously unrecognised economic benefits to health markedly changes economic benefits to health markedly changes cost-benefit considerations associated with cost-benefit considerations associated with investing in health investing in health

2) Economic policymakers should explicitly consider investing in health as one of the options by which to achieve their economic goals

3) Acknowledging the bi-directional relationship between health and the economy means that it is economically sound to have health as an integral part of the overall economic strategy

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4) A particular importance for thinking about ways to close the economic gap within the enlarged EU( Structural Funds)

5) Is the welfare state good for growth?

6) What is the aim of economic policy?

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7) If health is good for the economy, how then should we invest in health?

a) Investing in the health system

b) Investing outside the health system: “Healthy Public Policy”(understood as policies outside the health sector that impact upon health without the primary goal of doing so)

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The economic evidence offers a good opportunity The economic evidence offers a good opportunity to start making the case for healthy public policiesto start making the case for healthy public policies

Healthy public policies can bring health benefits, but in turn also additional economic benefits precisely via the health benefits. This needs to be demonstrated!

Making the case for “healthy public policies”

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4.4. Where next?Where next?

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1)1) Need for improved quantitative Need for improved quantitative assessment of the narrow and assessment of the narrow and wider costs and benefits of wider costs and benefits of health investment, in particular health investment, in particular for:for:

a) Investment in prevention through the health system

b) Healthy public policies

This would allow direct insertion into economic investment strategies!

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2)2) Clear evidence that government Clear evidence that government has an economically justified role has an economically justified role to intervene in health policy in to intervene in health policy in rich countries and this is not rich countries and this is not simply a matter for individual simply a matter for individual choicechoice

This would lay the ground for seeing effective government health intervention as similarly “justified” as e.g. investment in road infrastructure or schools

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… … and more researchand more research

The vast majority of the evidence The vast majority of the evidence reviewed comes from the USAreviewed comes from the USA

The paucity of large scale, internationally The paucity of large scale, internationally consistent surveys in Europe is a major consistent surveys in Europe is a major factorfactor

… … which in turn feeds into lack of research which in turn feeds into lack of research capacity to undertake this researchcapacity to undertake this research

We cannot assume that results can be We cannot assume that results can be extrapolated uncritically across the extrapolated uncritically across the Atlantic Atlantic

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Further readingFurther reading Suhrcke M, McKee M,

Sauto Arce R, Tsolva S, Mortensen J. The Contribution of Health to the Economy in the European Union. Brussels: European Commission, 2005.