Commentary by Professor David E. Bloom, a Clarence James Gamble Professor of Economics and Demography at Harvard T.H. Chan School of Public Health on health care finance and its sustainability.
Health care spending – and the corresponding need for health care finance – reflect a number of influences. These include the burden of disease among actual and prospective patient populations. They also include the cost of providing health services as well as the expectations and decisions of key stakeholders with regard to the menu of services provided and their quality.
Health spending pressures can be addressed through a variety of health system reforms.
As one example, health system reforms focused on the prevention of disease are a potent way to control rising health care costs. As the old adage goes, “an ounce of prevention is worth a pound of cure”. The application of this idea could involve everything from raising taxes on sugar-sweetened beverages, tobacco, and alcohol to increasing incentives and opportunities for physical activity and eating healthful foods. Disease prevention could also involve promoting the uptake of existing elderly vaccines like those for influenza, shingles, and pneumococcal disease. In addition, disease prevention naturally encompasses the development and uptake of new vaccines like a universal flu vaccine and vaccines for common hospital-acquired infections, like Clostridium Difficile and respiratory syncytial virus (RSV).
Earlier this year, my colleagues and I published a paper in Elsevier’s Journal of the Economics of Ageing.1 In that study we estimated the benefits of administering adult pneumococcal vaccination to Danish adults aged 50 and over. We found that the benefits of avoided medical care costs and productivity gains in market and non-market work translated into a whopping 144 percent return on investment – about 70 times higher than the current yield on US Treasury bills. For the over 65 year old crowd of diabetics in Denmark, the return on investment is close to an eye-popping 1200 percent.
The point here is that while elderly vaccination is costly to do, we found evidence – at least in this case – that it is far more costly not to do.
As another example, health system reforms aimed at the early detection of disease can also make a significant contribution to the control of health spending and the need for health finance. The basic idea here is that when diseases are caught early, they are usually easier and less expensive to treat, and more satisfactorily and permanently resolved.
Nipping health problems in the proverbial bud lowers direct health care costs and enables people to work longer and more productively, which gives a boost to their income and to the government’s tax receipts. This logic tips the scale in favour of employers establishing on-site health care centres or subscribing to mobile health services that reduce inconvenience as a potential barrier to health care utilization. It also argues for smart systems for quickly soliciting online health advice, replete with second and third opinions from trained physicians in good standing.
A third approach to controlling health costs without sacrificing health outcomes focuses on technological innovation. This approach would include personalized and precision medicine, fuelled by advances in molecular and genetic testing, which offers new possibilities for individualized prediction and treatment of disease. This approach would also include the implementation of digital health innovations like telemedicine, inter-operable electronic medical records, and wearable sensors that can spot changes in physiological function, gait, and drug adherence – all of which may be either indicative or predictive of health events.
The sustainability of health financing is advanced by health system adaptations that either:
- achieve comparable health outcomes at lower cost or,
- achieve superior health outcomes at the same cost.
In the first case, financing pressure is obviously reduced. In the second case, financing pressure is increased, but will be offset – perhaps more than offset – by the beneficial effects of health on productivity, income, and tax contributions. This observation has to do with the emerging view of health as more than just a state of complete physical, mental, and social well-being. It has to do with the broader view that sees health as all that, plus something that also has the character of an economic asset – an asset that yields pecuniary dividends.
By way of further explanation, economists have traditionally viewed the value of health as being predominantly utilitarian in nature – the notion being that the opportunity to live a long and healthy life creates value by contributing to our utility or happiness.
Viewed in that way, economists and economic policymakers have seen health as more akin to consumption than to investment, and they have regarded health spending more as a burdensome cost than as an income-generating investment.
For the lion’s share over more than two centuries, this was the standard view of macroeconomists and senior policymakers with the power of the purse, like Ministers of Finance and Planning.
This view led to health spending being accorded relatively low priority in the competition for public resources. Essentially, the expectation was that population health would naturally improve after countries got rich – mainly as a result of richer populations having more resources for nutrition, safe water and sanitation, and better-quality health care. More recently, however, thinking on this matter has shifted. Population health is now regarded as having not just utilitarian value, but also instrumental value – value as a robust and potent instrument for promoting economic wellbeing and the alleviation of poverty.
The past two decades have seen an explosion of theory, evidence, and good old common sense in support of this new perspective on the nature of health. This explosion reflects the fact that healthy workers tend to have better rates of work attendance and engagement than their less healthy counterparts, to be less fatigued and distracted, and to be more productive for more hours. It reflects the fact that healthy children tend to have better records of school attendance, go to school for longer (more years), and get more out of every day they spend in school. It reflects the tendency of healthy populations to save more in anticipation of longer periods of retirement, to be more attractive destinations for foreign investors, and to be better at controlling fertility and escaping from the often-crushing burden of youth dependency.
Healthier thus means wealthier – a principle of economic development that implies that health spending has a natural tendency to promote the sustainability of health finance. This is all in addition to the utilitarian, social equity, social and political stability benefits of good health.
- Sevilla, J., Stawasz, A., Burnes, D., Poulsen, P. B., Sato, R., & Bloom, D. E. (2019). Indirect costs of adult pneumococcal disease and productivity-based rate of return to PCV13 vaccination for older adults and elderly diabetics in Denmark. The Journal of the Economics of Ageing, 14, 100203. doi: 10.1016/j.jeoa.2019.100203
Professor David E. Bloom
Clarence James Gamble Professor of Economics and Demography, Harvard T.H. Chan School of Public