Abstract
The coronavirus disease 2019 (COVID-19) pandemic highlights the importance of strong and resilient health systems. Yet how much a society should spend on healthcare is difficult to determine because additional health expenditures imply lower expenditures on other types of consumption. Furthermore, the welfare-maximizing (“efficient”) aggregate amount and composition of health expenditures depend on efficiency concepts at three levels that often get blurred in the debate. While the understanding of efficiency is good at the micro- and meso-levels—that is, relating to minimal spending for a given bundle of treatments and to the optimal mix of different treatments, respectively—this understanding rarely links to the efficiency of aggregate health expenditure at the macroeconomic level. While micro- and meso-efficiency are necessary for macro-efficiency, they are not sufficient. We propose a novel framework of a macro-efficiency score to assess welfare-maximizing aggregate health expenditure. This allows us to assess the extent to which selected major economies underspend or overspend on health relative to their gross domestic products per capita. We find that all economies under consideration underspend on healthcare with the exception of the United States. Underspending is particularly severe in China, India, and the Russian Federation. Our study emphasizes that the major and urgent issue in many countries is underspending on health at the macroeconomic level, rather than containing costs at the microeconomic level.
Highlights
To tackle health emergencies, such as the coronavirus disease 2019 (COVID-19) pandemic, and to cope with the health-related challenges of the unprecedented population aging that the world currently faces (Bloom et al, 2020; Bloom et al, 2018; Bloom et al, 2015; Chen & Bloom, 2019; Chen et al, 2018; Chen et al, 2019b), nations need strong and resilient health systems
While the understanding of efficiency is good at the micro- and mesolevels—that is, relating to minimal spending for a given bundle of treatments and to the optimal mix of different treatments, respectively—this understanding rarely links to the efficiency of aggregate health expenditure at the macroeconomic level
The lower gross domestic products (GDPs) and associated value of a statistical life (VSL) in China and India imply a lower optimal share of health expenditures in GDP, our macro-efficiency score indicates that the current spending shares are so low that these two countries would benefit from spending increases
Summary
To tackle health emergencies, such as the coronavirus disease 2019 (COVID-19) pandemic, and to cope with the health-related challenges of the unprecedented population aging that the world currently faces (Bloom et al, 2020; Bloom et al, 2018; Bloom et al, 2015; Chen & Bloom, 2019; Chen et al, 2018; Chen et al, 2019b), nations need strong and resilient health systems. Journal Pre-proof health expenditures increased strongly in recent decades, not just in absolute terms and as shares of their gross domestic products (GDPs) (Papanicolas et al, 2018). This increase is expected to continue over the coming years and to reach more than US$24 trillion by 2040 (Dieleman et al, 2017). The important question of whether such high spending levels are optimal remains largely unanswered. While one analysis suggests that the spending level for the United States may be too low (Hall & Jones, 2007), this result remains up for debate While one analysis suggests that the spending level for the United States may be too low (Hall & Jones, 2007), this result remains up for debate (D. Cutler, 2021) and systematic and rigorous investigations of other countries are scarce
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