A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Wang, Fuhmei; Wang, Jung-Der; Huang, Yu-Xiu Article Health expenditures spent for prevention, economic performance, and social welfare Health Economics Review Provided in Cooperation with: SpringerOpen Suggested Citation: Wang, Fuhmei; Wang, Jung-Der; Huang, Yu-Xiu (2016) : Health expenditures spent for prevention, economic performance, and social welfare, Health Economics Review, ISSN 2191-1991, Springer, Heidelberg, Vol. 6, Iss. 45, pp. 1-10, http://dx.doi.org/10.1186/s13561-016-0119-1 This Version is available at: http://hdl.handle.net/10419/175611 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Health Economics Review (2016) 6:45 DOI 10.1186/s13561-016-0119-1 RESEARCH Open Access Health expenditures spent for prevention, economic performance, and social welfare Fuhmei Wang1, Jung-Der Wang2* and Yu-Xiu Huang3 Abstract Background: Countries with limited resources in economic downturns often reduce government expenditures, of which spending on preventive healthcare with no apparent immediate health impact might be cut down first. This research aims to find the optimum share of preventive health expenditure to gross domestic product (GDP) and investigate the implications of preventive health services on economic performance and the population’s wellbeing. Methods: We develop the economic growth model to undertake health-economic analyses and parameterize for Taiwan setting. Based on the US experiences over the period from 1975 to 2013, this research further examines the model’s predictions on the relationship between preventive health expenditure and economic performance. Results: Theoretical analysis and numerical simulations show that an inverse U-shaped relationship exists between the proportion of GDP spent on prevention and social welfare, as well as between the proportion spent on prevention and economic growth. Empirical analysis shows an under-investment in prevention in Taiwan. The spending of preventive healthcare in Taiwan government was 0.0027 GDP in 2014, while the optimization levels for economic development and social welfare would be 0 · 0119 and 0 · 0203, respectively. There is a statistically significant nonlinear relationship between health expenditure on prevention and the estimated real impact of economic performance from US experiences. The welfare-maximizing proportion of preventive expenditure is usually greater than the proportion maximizing economic growth, indicating a conflict between economic growth and welfare after a marginal share. Conclusion: Our findings indicate that it is worthwhile increasing investment on prevention up until an optimization level for economic development and social welfare. Such levels could also be estimated in other economies. Keywords: Economic growth, Health expenditures spent for prevention, Social welfare Background spending is health, of which we consider as implicit in the According to the American College of Preventive definition of the ACPM (https://www.oecd.org/els/health- Medicine (ACPM), the goal of preventive medicine is systems/Expenditure-on-prevention-activities-under-SHA- to protect, promote, and maintain health and well- 2011_Supplementary-guidance.pdf). Typical examples of being and to prevent disease, disability, and death preventive services are early detection of hypertension and (http://www.acpm.org/page/preventivemedicine). It fo- diabetes plus reactive prevention and control that would cuses on the health of individuals, communities, and generally reduce complication and/or mortality, which in defined populations. Although they refer these practices to turn would prolong survival, improve quality of life, and de- physicians to establish a specialty, it would be generally crease disability under highly cost-effective condition or accepted by health related fields to extend to all those prac- cost-saving [1, 2]. Although different countries may include tices by healthcare and public health professionals with the expenditures of preventive services with variations (e.g., same goal. The Health Division of OECD applies an add- whether reactive prevention services carried out by primary itional boundary stating that the primary purpose of care physicians are included, etc.), those listed by the National Health Expenditure Accounts in the United States * Correspondence: [email protected] (NHEA) and OECD used for prevention seem to be largely 2Department of Public Health, College of Medicine, National Cheng Kung University, Tainan 701, Taiwan comparable and policy relevant. Full list of author information is available at the end of the article © 2016 The Author(s). Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. Wang et al. Health Economics Review (2016) 6:45 Page 2 of 10 Screening and detection of oral, cervical and colorectal and pursues discounted lifetime utility maximization cancer at premalignant stage, stage 0, and/or earlier stages from consumption C, and from health, H. – would save life-years [3 5], quality of life [6], and health- Zt¼∞ care costs [4, 5]. Prevention of end-stage renal disease 1 ½lnCtðÞþη ln HtðÞexp − t dt η > 0 ð1Þ would save costs of dialysis [7] and long term care [8]. x t¼0 Thus, provision of effective preventive healthcare that re- duces the occurrence of catastrophic illnesses would gen- in which η presents the positive impact of health on util- erally reduce expenditures of later diagnosis & treatment ity. The representative household at a specific age has a for complications and long term care spending for disabil- life expectancy of x, and the reciprocal of this parameter ity. Early health interventions could possibly reap the 1/x, provides an indication of the mortality rate or the greatest health benefits in the long run for the population. subjective discounting rate [11]. In the following deriv- Recently, unfavorable macroeconomic environment ation, time scripts have been dropped for simplicity. can have serious immediate as well as long term conse- Individuals demand healthcare services to improve their quences on mental health and wellbeing across the life- health and guard against the effects of ill health. The span and more importantly across generations [9]. The provision of more health services through preventive global financial crisis leads many countries to reduce healthcare f, and treatment healthcare D, leads to better spending dramatically. Countries with limited resources health [12, 13]: : in economic downturns often reduce government expendi- _ tures, of which spending on preventive healthcare with no H ¼ f þD ð2Þ apparent immediate health impact might be cut down first, Government could reduce the population’sdurationof as there are also sick people in the population requiring sick time by devoting treatment medical resources and immediate treatment. Debate on prevention often focuses augment the amount of healthy time by devoting preven- on whether the optimal provision of preventive health tion medical resources [14]. The spending on preventive services exists. Furthermore, most people enjoy health and healthcare services could be regarded as the investment consumption from other things. “Health and survival are on the population’s health, leading to increases in health central to the understanding not only of the quality of one’s stock. Diagnostic and therapeutic healthcare expenditure life, but also for one’s ability to do what one has reason to leads to the recovery of health stock and could be want to do” [10]. This research provides a framework to regarded as the consumption expenditure as Eq. 2 shows. incorporate consumption and health with survival to find This research deals with an important policy-issue in the optimum share of preventive health expenditure to health economics, namely the trade-off between preven- gross domestic product (GDP) for maximization of popula- tion and treatment expenditures in health systems. This tion’s wellbeing and economic growth. specification does fit with the general understanding of Health