October 2013

Health equals wealth, and never more so than when times are bad

The link between health and wealth is well-established, but there is a sense that governments and policy makers have lost sight of this connection in the financial crisis, says Bengt Jönsson.

“This link has been discussed and observed for the past fifty years. The whole idea that health is not a burden on the economy, but is an active partner in fostering economic development and economic growth is widely acknowledged,” says Professor Bengt Jönsson, of the Department of Economics, Stockholm School of Economics.

“Now that we are in the situation where many public health care budgets have had to be cut, there is a need to remind ourselves of these links,” Jönsson says. “My first observation would probably be that a period of austerity is a particularly bad moment to contain health care expenditure, prompting further contraction at a time when economies are shrinking.”

However, health budgets do need to be used as effectively as possible to ensure the maximum economic return, raising the question of when cost containment should be attempted. “It’s a little bit of a Catch 22, because when the economy is going well it is difficult to contain expenditure, and when austerity strikes you are forced to do it at the wrong point in time,” says Jönsson.

The answer, Jönsson believes, is that efficiency is something that needs to be pursued and supported over the long-term. “Investments in health are something that should be a stabilising force in the economy, because unlike other goods and services, demand does not change in response to business cycles.” At the same time, there is a constant desire to see improvements in health care, and this does not disappear with austerity.

Human capital, or the quality of the labour force generated by investments in education and health, is one of the leading contributors to wealth. The rise in the level of HIV infections that has been observed since health care cuts were instituted in 2008 provides a depressing illustration of how poor health destroys human capital and what is at stake when budgets are reduced. “This is particularly sad since the development and introduction of effective treatments for HIV/AIDS is a classic example of the economic benefits of investing in health,” says Jönsson.

The recent increase in HIV infections also highlights that, during periods of austerity, it is important not to make across-the-board cuts by looking very carefully at how reduced budgets are spent. “You know in health care spending that there are pockets of waste – you need to weed them out and make room for further innovation and development,” Jönsson says.

One key finding from an assessment of the impacts of austerity-driven cuts on health carried out by the World Health Organisation Regional Office for Europe and the European Health Observatory, is that falling health care budgets and associated measures such as increases in co-payments have increased health inequality, both within and between countries in Europe.

Apart from undermining the principle of equity in access, this is significant because an uneven distribution of health within a population neutralises health spending as a driver of economic growth. “The exact nature of the relationship is debated, but if there are segments of the population with poor health that cannot participate in the labour market, there is a double negative effect on the economy: you don’t get the productivity and you have to bear the cost of health care and social care.”

Investments in improving the health of a population as a whole will have positive economic consequences resulting in higher growth; which as a consequence will improve health – a virtuous circle. Jönsson suggests three priorities for spending where the potential impacts are greatest. These are investing in health for segments of the population with the poorest health; investments outside the health care sector in promoting in healthy life styles and a healthy environment; and investment to maintain a healthy workforce in people aged 50-70 years.

This third area is particularly important given an ageing population and the desire by governments to raise the retirement age. More time spent in formal education and the resulting later start to working life, coupled with longer life expectancy, “Makes it both necessary and efficient to invest in avoiding health problems that reduce labour productivity later in life,” says Jönsson, noting that whilst Swedish data shows that the share of the population aged between 55-74 that rate themselves in good health is over 60 per cent, it means that close to 40 per cent think they are not in good health.

“If people need to work longer, they need better health. This is an area where there is an enormous potential to increase human capital, particularly when the economy is starting to revive and there is an increasing demand for skills,” Jönsson concludes.