Economic impact

It is generally accepted that economic prosperity determines health at both the individual level (income inequalities in health) (e.g. Martikainen et al, 2001; Mackenbach et al, 2005) and the macro level (higher life expectancies in countries with a higher gross domestic product of a country) (e.g. Preston, 2007).

There is also evidence that health determines economic prosperity. Ill health and disability can reduce labour supply, reduce labour productivity, influence education and training, and account for higher costs in healthcare and social security benefits (Suhrcke 2005, 2007, Mackenbach, 2007). The burden of ill health is socioeconomically patterned and therefore, the economic costs related to ill health, such as the ones related to reduced labour supply and increased healthcare, are also socioeconomically patterned. Reducing health inequalities by improving health in the lower socioeconomic groups has therefore large economic potential. A Europe-wide study estimated that health inequalities-related losses to labour productivity amount to €141 billion per year in the European Union. If health is valued in its own right, health inequalities-related losses amount to a staggering €1 trillion per year (9.4% of GDP) (Mackenbach et al, 2007). The full report, including a detailed description of the methods used, is available online.

Economic consequences will play an important role in the selection of actions. In general, standard economic evaluation tools, such as cost benefit analysis and cost effectiveness analysis can be helpful in building the economic case for action. In Table 9, the most common economic evaluation tools, including some of their characteristics are described.

Table 9: Types of economic evaluations and their main characteristics.
Cost Outcomes Advantages Disadvantages
Cost Effectiveness Analysis (CEA) Monetary (€, $) Single outcome (e.g. blood pressure) Clinically meaningful Cannot compare across interventions with different outcomes
Cost Consequence Analysis (CCA) Monetary (€, $) All outcome interventions listed Gives a comprehensive overview Difficult to choose and compare between different policy options
Cost Benefit Analysis (CBA) Monetary (€, $) Monetary (€, $) Comparison of different interventions is possible Difficult to express quality of life in monetary values
Cost Utility Analysis (CUA) Monetary (€, $) QALY, DALY Comparison of different interventions is possible, includes both quantity and quality of life QALY is not disease specific or suitable for specific target populations (e.g. children)
Cost Minimization Analysis (CMA) Monetary (€, $) Assumed to be equal between options Only cost data need to be gathered Equal outcomes not realistic in practice
Sources: Palmer, Byford & Raftery, 1999, Drummond, Sculpher, Torrance, O’Brien & Stoddart, 2005

It is important to acknowledge that economic evaluation tools have their limitations when it concerns actions addressing socioeconomic inequalities in health. For example, putting a monetary value on health and health related issues can be difficult. Apart from direct costs (e.g. increased healthcare costs), there are also indirect costs (e.g. costs related to labour productivity), and even intangible costs (e.g. quality of life related issues such as fear or pain). In addition, when looking at the costs of an action, it is important to also take into account the costs of not intervening (the costs of the existing socioeconomic health inequalities). Furthermore, complex long-term effects may not always be clearly visible or measurable. Most economic evaluation tools are not properly equipped to deal with equity issues and they should always be used with care.

A brief and informative document on understanding the economics of investments in the social determinants of health was written by the UCL Institute of Health Equity for Public Health England (PHE) (2014). The document, including some additional interesting evidence reviews on potential action to address health inequalities, can be found here.

In short, this PHE briefing by the UCL Institute of Health Inequalities covers:

  • “the rationale for understanding, measuring and taking into account the economic impact of decisions and interventions that impact on the social determinants of health
  • the benefits and limitations of various ‘economic measures of impact’ – commonly used terms which can be confusing, sometimes leading to misinterpretation of which measurement of economic impact is appropriate for what purpose
  • what is currently known about the economic impact of intervening in the social determinants of health
  • good practice and further resources which will support better decisions
  • this paper complements a collection of evidence reviews on health equity commissioned by Public Health England and written by the UCL Institute of Health Equity”

Next: Resources on economic evaluation