Mortality reductions from marginal increases in public spending on health

Abstract

There is limited empirical evidence of the nature of any relationship between health spending and health outcomes in Australia. We address this by estimating the elasticity of health outcomes with respect to public healthcare spending using an instrumental variable (IV) approach to account for endogeneity of healthcare spending to health outcomes. Results suggest that, based on the conditional mean, a 1% increase in public health spending was associated with a 2.2% (p < 0.05) reduction in the number of standardised Years of Life Lost (YLL). Sensitivity analyses and robustness checks supported this conclusion. Further exploration using IV quantile regression indicated that marginal returns on public health spending were significantly greater for areas with poorer health outcomes compared to areas with better health outcomes. On average, marginal increases in public health spending reduce YLL, but areas with poorer health outcomes have the greatest potential to benefit from the same marginal increase in public health spending compared to areas with better health outcomes. Understanding the relationship between health spending and outcomes and how this differs according to baseline health outcomes can help meet dual policy objectives to improve the productivity of the healthcare system and reduce inequity.