Health as Part of the Economy

Ms. Yuki Murakami, Economist/Policy Analyst of the OECD, posed the question “can health become an even bigger part of the economy without undermining fiscal sustainability?” This raises an interesting point because the cost pressure that healthcare puts on public budgets is a huge issue globally and healthcare spending is likely to continue to grow. The part of the story that is less publicized is the contribution that healthcare provides to economies in terms of employment opportunities in health and social care sectors, as well as the greater impact a healthy labor force can have on productivity, wages, absenteeism, and presenteeism. In thinking about solutions to improve health we must identify first what is driving costs. In stark contrast to the Japanese ageing challenge that has been touched upon throughout the Forum, the OECD data ascertains that ageing is not the key driver of health spending growth across the OECD countries. Rather, relative prices, technology and institutions and policies are the main driver. Thus, in order for countries to achieve fiscal sustainability so that current and future expenditure programs, services, and debt can be met, Ms Murakami proposed four distinct options.

The first, to improve value for money in healthcare, speaks to the growing need for prevention, mental health treatment, and reduction in medical practice variation within and between countries. This last point is particularly interesting because it is consistent with the findings of the Dartmouth Atlas and highlights the need for greater efficiency and standardization of healthcare delivery.
The next option, to reallocate public spending to health, is already occurring, however the more interesting option, to find a sustainable way of financing public expenditure on health, is much more controversial. This option proposes to bolster the payroll tax revenue stream with a “sin tax” that targets lifestyle choices such as tobacco and alcohol use. Tying disincentives to lifestyle choices that have clear links to adverse health outcomes and costs that the public budget ultimately pays is logical, however many argue it infringes on peoples’ rights and would fall disproportionally on the poor.

The final option for countries to increase health in a fiscally sustainable way is to engage the private sector for greater funding and cost sharing. There has been some shift to private financing, though costs aren’t necessarily reduced due to higher administrative costs, less bargaining power for insurers, and unfavorable risk selection. It is here that future business leaders can really impact the future direction of healthcare. Industry involvement can increase individual choice, spur innovation, and help reduce the public cost pressure from healthcare spending. What are needed are better cost sharing arrangements that are specific and selective in defining the services covered and that use cost-effective methods to assess new drugs and technologies. It is only through this sort of public-private collaboration that the burden healthcare places on public budgets can be reduced and the overall health and productivity of countries can be improved in a fiscally sustainable way.

By Erin McInerney (Tuck School of Business at Dartmouth College)

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