Healthy lives cost money
13 April 2017
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Economic Theory
Economic Theory
Labour Market
When the NHS was created in 1948, Aneurin Bevan believed that healthcare spending would fall as the population became healthier. In the years since, infectious diseases have been virtually eradicated, diets have improved, smoking rates have plummeted, and life expectancy has risen from 68 years to 81 years. And yet healthcare spending has manifestly not fallen. The NHS budget, which represented less than three per cent of GDP in the early 1950s, exceeds seven per cent of our (much larger) GDP today.
The belief that the NHS’s financial problems would be alleviated if people led healthier lifestyles continues to be widely held. When policies to clamp down on bad habits are proposed, campaigners cite the cost of smoking, drinking and obesity as their justification. When government preventative health budgets are cut, those who work in the sector claim that it is a ‘false economy’ that will cost the government more in the long run by creating more illness.
None of this makes sense to economists who understand that healthier lifestyles not only increase healthcare costs but also put a strain on other government departments by raising demand for pensions and social care. As Jane Hall explains in the Oxford Handbook of Health Economics, most preventive medicine, if successful, adds to government spending in the long run. ‘Although it is frequently argued (but not by economists) that prevention will save expenditure on future treatment,’ she writes, ‘the current body of evidence demonstrates that it is more likely to generate additional health care costs.’
Economic studies have found that 80 per cent of preventive health initiatives increase overall healthcare expenditure. In financial terms, a stitch in time does not save nine.
The reason is simple. A large proportion of a person’s healthcare costs are spent in the last year of life. These end-of-life costs cannot be prevented, only delayed, and are much the same regardless of the age at death. The years of life gained by lifestyle changes and medical technology tend to come when the person is retired and is a net recipient from the welfare system. The person who would have lived to the age of 68 when the NHS was founded now lives an extra thirteen years. This means an extra thirteen years of healthcare provision, pension payments and other benefits – all at a time when the person is paying no income tax.
When campaigners talk about the costs of smoking, drinking and obesity, they ignore the costs of old age that taxpayers would have to meet if nobody smoked, drank or gained weight. Most studies have shown smoking to be cost-saving overall and the same may also be true of obesity.
All told, only a fraction of the £24 billion paid in alcohol and tobacco duty each year is needed to pay for public services related to drinking, smoking and obesity. The rest of it is essentially a subsidy paid by those who drink and smoke to those who do not.
Whilst it would be repugnant for the government to actively encourage unhealthy living to save itself money, those who believe that taxes would be lower if unhealthy habits were stamped out are mistaken. There is a case for spending government money on preventative health care and there is a case for taxing alcohol and tobacco consumption. However, the case for both these policies cannot be made from the perspective of saving government money in the long run. As far as externalities arising from eating, drinking and smoking are concerned, they may exist, but they do not relate to costs imposed on taxpayers.
The belief that the NHS’s financial problems would be alleviated if people led healthier lifestyles continues to be widely held. When policies to clamp down on bad habits are proposed, campaigners cite the cost of smoking, drinking and obesity as their justification. When government preventative health budgets are cut, those who work in the sector claim that it is a ‘false economy’ that will cost the government more in the long run by creating more illness.
None of this makes sense to economists who understand that healthier lifestyles not only increase healthcare costs but also put a strain on other government departments by raising demand for pensions and social care. As Jane Hall explains in the Oxford Handbook of Health Economics, most preventive medicine, if successful, adds to government spending in the long run. ‘Although it is frequently argued (but not by economists) that prevention will save expenditure on future treatment,’ she writes, ‘the current body of evidence demonstrates that it is more likely to generate additional health care costs.’
Economic studies have found that 80 per cent of preventive health initiatives increase overall healthcare expenditure. In financial terms, a stitch in time does not save nine.
The reason is simple. A large proportion of a person’s healthcare costs are spent in the last year of life. These end-of-life costs cannot be prevented, only delayed, and are much the same regardless of the age at death. The years of life gained by lifestyle changes and medical technology tend to come when the person is retired and is a net recipient from the welfare system. The person who would have lived to the age of 68 when the NHS was founded now lives an extra thirteen years. This means an extra thirteen years of healthcare provision, pension payments and other benefits – all at a time when the person is paying no income tax.
When campaigners talk about the costs of smoking, drinking and obesity, they ignore the costs of old age that taxpayers would have to meet if nobody smoked, drank or gained weight. Most studies have shown smoking to be cost-saving overall and the same may also be true of obesity.
All told, only a fraction of the £24 billion paid in alcohol and tobacco duty each year is needed to pay for public services related to drinking, smoking and obesity. The rest of it is essentially a subsidy paid by those who drink and smoke to those who do not.
Whilst it would be repugnant for the government to actively encourage unhealthy living to save itself money, those who believe that taxes would be lower if unhealthy habits were stamped out are mistaken. There is a case for spending government money on preventative health care and there is a case for taxing alcohol and tobacco consumption. However, the case for both these policies cannot be made from the perspective of saving government money in the long run. As far as externalities arising from eating, drinking and smoking are concerned, they may exist, but they do not relate to costs imposed on taxpayers.
8 thoughts on “Healthy lives cost money”
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If Christopher Snowdon would like to do some research, he would find that there are conflicting studies on this subject. Not all support his assertions.
Although there has been a rise in healthcare spending, it is wrong to imply that this is all caused by greater longevity. Much if it is caused simply by the fact that we can do more at any age to treat a range of conditions and due to the law of diminishing returns – we now expensively treat many quite rare conditions that previously people would have had to live with and we keep far more premature babies alive, for example. He also mentions greater care requirements and cost for older people but neglects to mention that retirement ages are also increasing. Many people now go through their working lives with chronic conditions caused by lifestyle factors that have to be expensively treated – most diabetes treatment falls into this category, for example.
He also doesn’t account for the fact that many conditions caused by lifestyle lower the productivity of the workforce well before people retire and premature deaths and illness increase the burden on the state when the state has to pay for the dependents of the deceased or ill.
The picture is much more complicated than he acknowledges.
I should add, that even if you accept Christopher Snowdon’s argument, he is only looking at one part of the whole picture – healthcare and other costs of living longer. What he fails to consider is the contributions people make to the wealth needed to pay for these things, which, there is plenty of evidence to suggest, are lower from those with unhealthy lifestyles.
There is an article on this here: https://njaes.rutgers.edu/healthfinance/health-behaviors.asp
The costs of lost earnings fall on the individual. I’m looking at the costs to the government. The other points above are addressed at length in this discussion paper: https://iea.org.uk/wp-content/uploads/2016/07/Death%20and%20Taxes%20December%202015.pdf Whilst there are bound to be some long term conditions that are costly to treat, eg. diabetes, on balance the costs associated with longevity are greater than the savings, not only to the health service but more significantly to the welfare system.
Nonsense HJ. If you live longer you draw more pension and cost the NHS more in general illnesses, medicines, bad eyesight, hearing loss, dental care, statins etc etc.
Glad somebody has spelled it out, although as the previous comment suggests, it won’t make a blind bit of difference.
@Richard Evans – The discussion was about whether healthy lives cost money, not just about the costs of greater longevity. If you have an unhealthy life style but live longer due to NHS treatment, prescription of statins, treatment for diabetes, etc., then those constitute greater costs for unhealthy lifestyles, not healthy ones. Even if you don’t live longer, they will still cost money – just at an earlier stage and possibly restricting your productive potential.
@Christopher Snowdon: “The costs of lost earnings fall on the individual. I’m looking at the costs to the government.”
That is simply incorrect. Lost earnings also mean lower tax revenues. It may also mean greater benefits cost to government if the person is ill or dies, especially if they have dependents (which they generally don’t have after retirement age).
There is a fundamental flaw (in fact, several, but I shall mention just one) in Christopher Snowdon’s discussion paper. Essentially he argues that greater longevity increases costs because it is associated with higher medical/care costs and thus he concludes that healthy lifestyles (which tend to increase longevity) cost, not save, money. But he forgets that correlation does not imply causation. On average everybody (unhealthy or healthy lifestyle) is living longer and he does not demonstrate that the extra healthcare costs as people age apply equally to people what ever their lifestyle – from all we can tell from his analysis the extra average cost increase may all, or primarily, or at least disproportionately be caused by those with unhealthy lifestyles living longer. Averages don’t tell us this.
My point is a simple one – he has drawn conclusions that can’t be justified. I refuse to draw any conclusions because I don’t think the evidence or analysis done so far is good enough either way.
Incidentally, he is quite selective in the studies he references. In a previous discussion on the subject with Tim Worstall on the subject of smoking/obesity costs, I had to point out to him that the very study he quoted drew attention to its own shortcomings and itself referenced contradictory study findings.