Effects on the Australian economy of a moderate

and severe H1N1 epidemic

George VerikiosCentre of Policy Studies, Monash University

James McCawMurdoch Childrens Research Institute and School of

Population Health, The University of Melbourne

Tony HarrisCentre of Health Economics, Monash University

Introduction I• Early 2009: emergence of H1N1

epidemic• June 2009: global pandemic (WHO)• Jan 2010:

– H1N1 activity had peaked in most regions of the world but pandemic is ongoing

– In Australia, 37,562 confirmed cases, 191 deaths, but H1N1 activity is low

• Confirmed cases per 100,000 population suggest swine flu in Australia was more severe than many other regions

Introduction II• Hospitalisations per 100,000 population

also higher than most other regions – Of these, ICU admissions higher than

expected (13%)

• SARS 2003: large temporary economic effects on China, Hong Kong, Taiwan, etc

• What about 2009 swine flu in Australia?– MONASH-Health

Model: MONASH-Health I• Based on the MONASH model of the

Australian economy (Dixon & Rimmer 2002)– dynamic (annual)

baseline (forecast) policy (forecast + swine flu) deviation (effects of swine flu)

– detailed (100+ industries/commodities)– computable general equilibrium

household consumption government consumption investment exports imports foreign assets/liabilities

– model outputs: macro and micro variables

Model: MONASH-Health II

A simplified representation of the MONASH input-output table

Industry usage (IU) (j=1,…,J)

Household consumption

(HC)

Investment (I)

Government consumption

(GC)

Exports (E)

Total sales (TS)

[row sum]

Domestic commodity (i=1,…,K)

11 1

1

j

i ij

IU IU

IU IU

1HC

iHC

1I

iI

1GC

iGC

1E

iE

1TS

iTS

Imported commodity (k=1,…,K)

11 1

1

j

k kj

IU IU

IU IU

1HC

kHC

1I

kI

1GC

kGC

1M

kM

Land (L) 1L jL

Labour (N) 1N jN

Capital (K) 1K jK

TOTAL COSTS (TC) [column sum]

1TC jTC

Model: MONASH-Health III

Health treatment activities in MONASH-Health1. Cardiovascular 10. Genitourinary

2. Nervous system 11. Endocrine, nutritional & metabolic

3. Musculoskeletal 12. Skin diseases

4. Injuries 13. Maternal conditions

5. Respiratory 14. Infectious and parasitic

6. Oral health 15. Diabetic mellitus

7. Mental disorders 16. Neonatal causes

8. Digestive system 17. Congenital anomalies

9. Neoplasms 18. Signs, symptoms, ill-defined conditions and other contact with the health system

1. Human pharmaceuticals

2. Hospitals and nursing homes

3. Medical services (doctors’ surgeries)

4. Dental services

5. Optometry

6. Ambulance services

Medical services in MONASH-Health

Model: MONASH-Health IV

Input-output structure of health treatment activities in MONASH-Health Health treatment

industries (IU) (j=1,…,J)

Total sales (TS)

[row sum]

Medical services (i=1,…,K)

11 1

1

j

i ij

IU IU

IU IU

1TS

iTS

TOTAL COSTS (TC) [column sum]

1TC jTC

Sales structure of health treatment activities in MONASH-Health

Household consumption

(HC)

Exports (E)

Total sales (TS)

[row sum]

Health treatments (i=1,…,K)

1HC

iHC

1E

iE

1TS

iTS

MONASH-Health V• quarterly• capital idling (Dixon & Rimmer 2009)

– rental rates are sticky

• endogenous unemployment– real wage rates are sticky

=> lagged adjustment to shocks

Model shocks• possible economic effects of a major

epidemic:– temporary reductions in inbound and outbound

international tourism and business travel;– temporary upsurge in sick leave and

widespread school closures requiring withdrawal of parents from the labour force;

– large surge in demand for hospital and other medical services;

– some deaths with a related permanent reduction in the labour force;

– temporary cessation of large public gatherings (sporting events, etc).

Swine flu scenarios1. 2009 outbreak2. A severe outbreak

• epidemiological aspects of scenarios constructed using SEIR model of infectious disease transmission (Kermack & McKendrick 1927)

SIR model of infectious disease

• Between S and I, the transition rate is β I, where β is the contact rate, which -roughly speaking - takes into the account the probability of getting the disease in a contact between a susceptible and an infectious subject.• Between I and R, the transition rate is ν (simply the rate of recovery). If the duration of the infection is denoted D, then ν = 1/D, since an individual experiences one recovery in D units of time.• Assume that the permanence of each single subject in the epidemic states is a random variable with exponential distribution.

SIR systemThe SIR system can be expressed by a set of ordinary differential equations

The key to the dynamics of an epidemic is the ratio β/v – the reproduction ratio

In this simulation we take observed confirmed cases and work back to the number infected. The cumulative number of cases that are admitted to hospital and ICU and that die are based on publicly available data but the exact timing is modelled given a typical β for influenza

2009 outbreak I• 4.3m Australians infected and experience

symptoms in 2009Q3 & 2009Q4– 3.9m seek no med attention but spend $5 on

drugs– 0.44mm seek medical attention but aren’t

hospitalised ($61 per capita)– 4,500 hospitalised ($3,564 per capita)– 857 hospitalised in an ICU ($12,356 per capita)

• 670 of these survive, 187 die

• $73m increase in medical expenses over 2009Q3 & 2009Q4; 4.1% increase in demand for respiratory treatments over 2009Q3 & 2009Q4

• Medical expenditure returns to baseline in 2010Q1

• Demand-contracting effect

2009 outbreak II• Workers miss

– 3.2m workdays over 2009Q3 & Q4 due to illness

– 148,000 workdays caring for children who are sick or at home due to school closures, or are absent from work due to own-illness

• Equivalent to 0.48% fall in labour productivity

• Labour productivity returns to normal in 2010Q1

• Cost-increasing effect

2009 outbreak III• Of the 187 deaths, 126 are workers• Permanent reduction in workforce of

0.001% over 2009Q3 & Q4• Supply-reducing effect

2009 outbreak IV• During 2009Q3, inbound/outbound

tourism fall by 7.9% (Dwyer et al. 2006)

• During 2009Q4, inbound/outbound tourism fall by 1.2% (Dwyer et al. 2006)

• Tourism recovers smoothly to basecase over 2010Q1 and 2010Q2

• Cancelled outbound tourism expenditures are saved

• Demand-contracting effect

2009 outbreak: results I

(percentage deviations from baseline)

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

GDP Employment

2009 outbreak: results II

(percentage deviations from baseline)

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

Real wage rate Employment

2009 outbreak: results III

Effects of individual shocks on aggregate employment (percentage deviations from baseline)

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

1. Medical services 2. Labour supply

3. Labour productivity 4. Tourism

Severe outbreak I• $1.6b increase in medical expenses

over 2009Q3 & 2009Q4; 31% increase in demand for respiratory treatments over 2009Q3 & 2009Q4

• Medical expenditure returns to baseline in 2010Q1

Severe outbreak II• Permanent reduction in workforce of

0.32% over 2009Q3 & Q4 medical expenditure returns to baseline in 2010Q1

• 1.7% fall in labour productivity• Labour productivity returns to normal

in 2010Q1

Severe outbreak III• During 2009Q3, inbound/outbound

tourism fall by 65% (Pine & McKercher 2004; Wilder-Smith 2006)

• Tourism recovers smoothly to basecase over next 4 quarters

• Cancelled outbound tourism expenditures are saved

Severe outbreak: results I

(percentage deviations from baseline)

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

GDP Employment

Severe outbreak: results II

(percentage deviations from baseline)

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

Real wage rate Employment

Severe outbreak: results III

Effects of individual shocks on aggregate employment (percentage deviations from baseline)

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1

1. Med services 2. Labour supply

3. Labour productivity 4. Tourism

Conclusion• H1N1 epidemics are very short term:

need quarterly model• Significant macroeconomic effects:

short and sharp– 2009 outbreak: return to baseline in 4

quarters– severe outbreak: return to baseline in 5

quarters

• limitations of severe scenario– capacity constraints for hospitals– change in risk-modifying behaviour– policy responses: vaccination; prohylactic

anti-viral medications and their costs