The economic costs of ill health in the European Region

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Key messages of this publication

  • Economic development is generally good for health, but health can also bring substantial economic benefits. Several years ago, the WHO Commission on Macroeconomics and Health demonstrated this for developing countries, and there is now considerable work demonstrating the health-to-wealth relationship within the WHO European Region.
  • Evidence on the economic costs of ill health is essential to any assessment of the economic return on investing in health, but what those costs mean and how they should be measured must be understood to ensure that such investments are made wisely.
  • In light of the heterogeneity of views in the public debate about what “the economic costs of ill health” actually means, clarifying the different cost concepts and assessing their respective relevance is important. We can divide these concepts into three types of cost: (1) welfare, (2) micro- and macroeconomic and (3) health care.
  • The welfare costs of ill health are the most encompassing and measure the value individuals attribute to health. This includes the intrinsic value of health and far exceeds the earnings an individual would gain by living a longer, healthier, more productive life. While the value people attribute to health is high, it is not infinite.
  • The value people attribute to health is difficult to measure: there is, of course, no market price. Such value can be inferred, however, from the decisions people make in situations that involve a trade-off between money and health, for instance in deciding to require greater compensation to perform dangerous jobs.
  • A simple calculation reveals that in many WHO European Region countries between 1970 and 2003, the welfare gains associated with improvements in life expectancy totalled 29–38% of gross domestic product (GDP) – a value far exceeding each country’s national health expenditures.
  • Microeconomic and macroeconomic costs are more tangible but more limited measures of the costs of ill health.
  • At the microeconomic level, there is substantial and growing evidence suggesting that ill health reduces individuals’ labour productivity and labour supply. Health status even emerges as the main determinant of labour supply by older workers in several studies.
  • Findings are more mixed at the macroeconomic level. Considerable literature suggests that ill health is bad for economic growth in developing countries, but recent research contradicts that view. Work on developed countries is limited.
  • “A healthier population means less spending on costly health care” sounds plausible, but is it true? The evidence is equivocal. Even if better health may, in some circumstances, lead to lower health spending, other cost drivers, in particular technological advances, will more than outweigh any savings from improved health. On the other hand, there is also not much support for the hypothesis that better health by itself would be a major cost driver.
  • It is useful to document whether and how better health produces tangible micro- and macroeconomic benefits, and how it may (in some cases) reduce future health-care costs. But these economic benefits are very small compared with the broader and more relevant welfare economic gains expressed as the monetary value people attribute to health improvements.
  • Policy-makers should be encouraged to factor welfare gains into their economic evaluations of health interventions. Failure to do so risks understating their true economic benefits.