Investing in Health

EU ConferenceGastein, October 2nd, 2003

Mukesh Chawla, Ph.DThe World Bank

The Health and Growth RelationshipWell-establishedCausality runs both waysHigher incomes facilitate access to goods and services – like nutritious diet, safe water, quality health care - that promote health and longevityNutrition and health promote long-term growth

How Health Affects GrowthGood health enhances worker productivity by raising physical and mental capacity as well as cognitive functioning and reasoning abilityHealth improvements facilitate labor market participation, worker productivity, investments in human capital, savings, fertility and population age structure Health improvements influence income growth through effect on labor market participation, enhanced worker productivity, investments in human capital, etc.

The Evidence

At the microeconomic level, positive relationship between health and productivity of workers (see, for example, Schultz 1999, 2002)At the macro level, positive and significant effect of health on worker productivity (Bloom et al, 2003)Strong correlation between aggregate health measures (life expectancy, etc.) and per capita income (The World Bank)

The EvidenceSeveral studies show that life expectancy has a significant, sizeable and positive influence on economic growth (Barro 1996, Bhargava et al 2001, Easterly and Levine 1997, Sachs 2000)Large part (33% per annum) of British economic growth during 1780-1980 was due to increase in nutrition (Fogel 1997)Improved health increased labor availability in Korea by 1% a year or more during 1962-95 (Sohn 2000)

Commission on Macroeconomics and Health (CMH)

CMH research finds that the economic impact of ill health on individuals and societies is far greater than previous estimates. Providing basic health care to the world's poor is technically feasible and cost effectivePotential saving of 8 million lives annuallyFuel development by generating hundreds of billions of dollars in new economic activity every year

Health and Poverty TrapPoverty creates disease and disease creates poverty (Prof. Daniel Cohen, Ecole normale superieure, Paris, France)Ill health disproportionately afflicts poor people, and imposes a higher level of risk on the poorThe poor are more exposed to diseases, and they often work mostly in physically demanding jobs in unsafe conditions“The body is poor people’s main asset, but one without insurance” (The World Bank)

Health and Poverty TrapHuge gap between rich and poor in access to health servicesIllness most frequently cited by the newly poor as the cause of their slideA wage earner’s illness can push families over the edge into poverty, and poor families into destitution. For women in particular, poor reproductive health is a source of insecurity and a major factor in their poverty. (Source: World Bank Poverty Reports, various countries and years; UNFPA: The State of World Population 2002)

The Debilitating Effect of Diseases

Approximately one-thirds of world’s population infected by tuberculosis: annual economic costs to the poor: US$12 billion (WHO 2001)Countries with high malaria transmission averaged only 0.4% growth per annum compared to 2.3% in other countries (1965-1990)

The Debilitating Effect of DiseasesPotential effect of an HIV-AIDS epidemic among economically active population in Eastern and Central European countries: annual decline in economic growth of 0.5 to 1% (The World Bank 2003)Neuropsychiatric disorders will account for 15% of the global burden of disease by 2020Mental illness impairs productivity and adversely affects the formation of human capital

$ bi

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n

1965 1970 1975 1980 1985 1990 1995

10

20

30

40

50

Direct Costs of Diabetes in the USA (Source: Barnes 2003, presentation at the PCU Conference in Lithuania, September 2003)

Total direct and indirect cost of diabetes in USA – US$98.2 billion (1997) (Source: Barnes 2003, presentation at the PCU Conference in Lithuania, September 2003)

Total direct and indirect cost of diabetes in USA – US$98.2 billion (1997) (Source: Barnes 2003, presentation at the PCU Conference in Lithuania, September 2003)

$24,6

$7,7$11,8

$37,1

$17,0 Mortality – cost of productivity loss

Handicap

Chronic complicationsAcute complications

Cost of general medical service

Direct Costs of Diabetes in Europe (Source: Barnes 2003, presentation at the PCU Conference in Lithuania, September 2003)

Country Total per-patient cost (Euros, 1999)

Belgium 3,295

France 3,064

Germany 3,576

Italy 2,991

Netherlands 1,827

Spain 1,305

Sweden 2,630

UK 2,214

Work disability accounts for most of the indirect cost of diabetes

Diabetes patients more likely to stop working entirely and to take early retirement (Yassin et al., 2002, Olsson et al., 1994)

Early death of diabetes patients accounts for one-third of the indirect cost of diabetes in the U.S. (ADA 1997) and 22% in Sweden (Henriksson and Jönsson, 1998)

Indirect Costs of Diabetes Exceed Direct Costs (Source: Barnes 2003, presentation at the PCU Conference in Lithuania, September 2003)

Conclusions

Widespread evidence of long-term causal inter-relationship between health and worker productivity“Health improvements influence the pace of income growth via their effects on labor market participation, worker productivity, investments in human capital, savings, fertility and population age structure” (Bloom, Canning and Sevilla, 2003)

Conclusions

Strong case for justifying public expenditures on health as an investmentFocus on the health of the poor will yield rapid and significant dividendsTop priority to the prevention and treatment of HIV infections and tuberculosis

Conclusions

“Working together for health is not

just a matter of charity, it also

makes economic sense.”- UN Secretary-General Kofi Annan,

addressing the World Economic Forum in

New York in February 2003