Projecting a Long Term Expenditure Growth in Healthcare Service: A Literature Review ScienceDirect

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Procedia Economics and Finance 37 ( 2016 ) 152 – 157

Peer-review under responsibility of Faculty of Business Management, Universiti Teknologi MARA doi: 10.1016/S2212-5671(16)30106-X

ScienceDirect

FIFTH INTERNATIONAL CONFERENCE ON MARKETING AND RETAILING (5TH INCOMaR) 2015

Projecting a Long Term Expenditure Growth in Healthcare Service:

A Literature Review

Abdul Azeez Oluwanisola Abdul Wahab

^a*

& Zurina Kefeli

^b

a,bFaculty of Economics and Muamalat, Universiti Sains Islam Malaysia.

Abstract

The upsurge and control of healthcare expenditure growth are becoming a thought-provoking issue for numerous governments globally in spite of the fact that health is one of the superseding fundamentals of physical condition. Nevertheless, with the growing rate of an ageing population and increasing prolonged health difficulties, the protection of the quality of life demands better health spending on the part of the government. Generally, there are huge variances on the dimensions of monetary obligation nations dedicate to health. In this regard, this paper aims to project a long-term expenditure growth in health care service as it is believed that the outcome of this paper will contribute and suggest a policy direction to the government and concern organizations on the effective management of healthcare system.

Peer-review under responsibility of Faculty of Business Management, Universiti Teknologi MARA.

Keywords: Long-term expenditure, Growth and Healthcare Service.

1. Introduction

The socio-economic expansion altitude of every nation has been considerably involved in the form of health and welfare of its populace. Health services comprise of entire facilities that deals with the identification and management of disease, or the advertising, conservation and reinstatement of health. It comprises of private and non-private health services and the services are the greatest noticeable purposes of any health system, mutually to public and overall consumers. Thus, service delivery denotes the approach with which involvements such as cash, workforce, apparatus and medications are pooled to permit the conveyance of health intermediations.

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* Corresponding author. Tel.: +6017-3125098 E-mail address: [email protected]

Peer-review under responsibility of Faculty of Business Management, Universiti Teknologi MARA

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Subsequently, enhancing accessibility, treatment and standard of services hinge on these fundamental possessions being accessible; on the conducts of services and management, and on inducements prompting suppliers and consumers (WHO, 2015). Conversely, it is indisputable that hale and hearty communities have noteworthy impacts on the economic progression of a state due to the fact that the longer the people live, the more productive they will become. Oni (2014) stated that there is a connection between the health of worker’s and productivity which, in the long run, stipulate a meaningful influence on their aggregate output. Hale and hearty employees are more industrious and lose fewer times from job due to poor health. There are economic enhancements of health benefits with wide-ranging economic development while poor health locked people in poverty (WHO, 1999). Barro (1996) acknowledged that health is considered as a principal productive quality and a mechanism for economic growth. Therefore, an approximation of fifty percent of economic improvement inequality between developed and emerging economy is associated with poor health and stumpy life expectancy (WHO, 2005). A substantial proportion of resources in developed nations is devoted and assigned for the provision of improved healthcare service as they consider that health is part of the principal movers of economic advancement. Jack and Lewis (2009) examined that health could hamper economic development because of its consequence on individual and physical capital build-up.

In the same way, if we presume that better health communities are more productive, for that reasons, populace who are hale and hearty have a solid incentive to progress their educational enhancement and skillfulness because they have lengthy living age (Bloom & Canning, 2000). On the other hand, ill-health has an unreceptive consequence on productivity, because, the lack of growth witnessed in a number of areas all over the globe has been connected to ill-health (Cole & Neumayer, 2006). In addition, Clayton (2010) observes health as a main driver of country development and economic growth which give support to enhancement in labor efficiency and lessen the fiscal and unanticipated spending on sicknesses and in the long run improved healthcare services. The most important worth of community healthcare scheme is for the public to have the liberties and opportunities to obtain enhanced health services. Albeit, health is regarded as one of the constitutional rights documented by global regulations for all.

2. Literature Review

Arrays of studies in the past have attempted to discover the determinants of economic development.

Consequently, health is established to be part of the variables that are logically significant for illuminating economic development.

2.1 General perception of health and Economic growth

There are copious realistic studies that have observed the healthcare expenditures and economic growth, and they established that there is a constructive association between healthcare spending and economic development. Wang (2009) considered the determinants of healthcare expenditure through standardized panel data for the US region and indicated that the gross state product, the percentage of the population above the age of 65years, the level of urbanization and the quantity of hospital beds were the four main liable basic elements revealed from the assessment for determining healthcare expenditure. Also, a different survey conducted by Gupta and Mitra (2003) among 15 states in India during 1973 and 2000 demonstrated that per capita communal health spending absolutely have effect in health prominence, whereby enhancement in health reduces level of poverty decreased. In this regard, the study concluded that development and health are strongly inter-correlated.

However, the efficiency of health outflows on the gross domestic product has been lengthening from the prologue of the assumption of the human capital theory of Beker 1964 into the collection of the economic programme. Based on this viewpoint health spending has been pinpointed to augment human capital account and it is believed that enhancement in health indicators could in the long-run drives GDP growth of countries.

As a result, health spending and real GDP in diverse nations pooled a universal correlation due to numerous theoretical philosophies and survey thoughtfulness. (Beheshti and Sajoudi, 2008). Rivera and Currais (1999)

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signified that nations that have extra health spending will have greater economic development. The research employed healthcare expenditures per capita as a proxy for the health of the people and proposed a connection between health and expansion of OECD countries for the duration of 1960-1990. The investigation showed that education is not considered as the solely dynamic element in workforce efficiency and productivity. Hence, undertakings in health from the side of human capital build-up considerably take part in labour productivity.

Furthermore, human capital growth importance and relationship to health cannot be ignored, as health is considered as one of the impeccable tools of human capital which is the basis for countries growth and expansion.

Bloom and Canning (2000) acknowledged an appraisal on health through different guided studies for emerging economies and found out those nations where life expectancy is greater as five years expansion velocity, the real income per capita will as well be greater. Hence, the impact of health on productivity was examined by the study from four different ways: firstly, the study proclaimed that a healthier labour force produces more as a result of his mental and physical ability and is likely to absent less in his workplace because of illness or of his family. Secondly, persons with higher life expectancy are likely to have more enthusiasm for investment in education and strive to attain a higher productivity. Thirdly, the amount of savings for the retirement period will rise by increase in people's age as a result of better health and will eventually lead to investment and in the long run improve the country’s economic growth. Fourthly, health development in terms of life enhancement and health of children might be an impetus to reduce impregnation; as a result peoples engage themselves further in the labour market and acquire higher income per capita. Therefore, Bloom and Canning measured nation’s production as a function of its inputs, for instance, physical capital, labour force, human capital and health are a function of effective productivity. The main outcome of their study is that health has a substantial effect on the economic growth such that one-year rise in life expectancy indicates 4% increase in national productivity and demonstrate that expenditures on health is considered a reasonable investment. To further accentuates the significance of health care to the economic growth of a nation, Howitt (2005) considered ways through which health capital of labour force in a country influence economic long term growth from the view of Schumpeterian Growth Theory. The established outcomes from this growth model stated that child and mother health plays a vital part in the human capital of one's infancy period. Thus, for this imperial reason he regarded this matter as appropriate motivation for the governments to enthusiastically invest in children and mothers' health.

Meanwhile, modern agreement in scientific gatherings and policy making validates that the current disease environment and health status have been generated on the premise of high-income variations among countries (Acemoglu and Johnson, 2006). The argument on health status enhancement should not be based merely to increase life expectancy but to stimulate rapid economic growth. The study concluded that improved life expectancy leads to a sizeable rise in population. Significantly, the birth rate is not measured to compensate improved life expectancy. Hence, they observed that the effect of life expectancy on total GDP is little, and this effect has been developed nearly or more than forty years. Therefore, they viewed that rise in population growth should not be perceived as sufficient enough as compensation for economic progression. Further, Javadipour (2005) measured the impact of health expenditures on economic growth using the case study of thirty-three selected developing countries during the period of 1990-98. They studied the impact of health expenditures on economic growth with the generalized technique of Solow's model and through inter-country approach and panel data model. The results showed that in addition to human capital, health capital that is identified with health expenditures variable has a positive and significant effect on economic growth. Moreover, from the result of simultaneous tests it shows that health expenditures variable is influenced by economic growth and the study rejected the assertions that physical capital is one of the greatest rudimentary problems of developing countries in the course of growth and development. On the other hand, the study recognised the view that presents human capital with education and health as an important component of growth and development. In contrary, Bukhari and Butt (2007) have presented in their studies when investigating the effect of health expenditure on gross domestic product and authenticated that causality in Pakistan has been from gross domestic product to health expenditures throughout the period of 1972-2000. As a result, the study resolved from its supposition that health

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expenditures do not have any impact on production. Hitherto, this outcome was completely in contrary to the previous studies which confirm the existence of a connecting relationship between health expenditure and economic growth (see Bloom and Canning, 2000, Rivera and Currais, 1999, and Howitt, 2005).

In addition, Beheshti and Sojoudi (2008) considered the long-term relationship between health expenditures of the government and gross domestic product in Iran for the period of 1960-2005 and income pressure of health expenditures. The results of the Bond test and Johansson's convergence prove that there is only one long- term relationship between health expenditures of the government and gross domestic product which has a positive and significant impact on government's health expenditures. Equally, the amount of income pressure of health expenditures is close to one, and it is considered to be essential. In view of that, Mehrara and Fazaeli (2010) also examined the relationship between health expenditures and economic growth in Middle East countries and North Africa (MENA) using the sample of thirteen countries for the period of 1995-2005 through co-integration technique based on pooling data. The study observed that even though two variables of health expenditures and gross domestic product for these groups of countries (MENA) were not stationary but there is evidence of a long-term stable relationship between these two variables (health expenditures and economic growth). Correspondingly, a diverse study by Aguayo-Rico and Iris (2005) observes the impact of health on economic growth for 13 European countries, 12 African countries, 16 American countries, and 11 Asian countries over the period 1970-80 and 1980-90 using ordinary least square (OLS), they found out that health capital has an imperative effect on economic growth, particularly with a variable that take into account all the determinants of health.

2.2 The relationship between health and Human Development Index (HDI)

Human capital has been well-thought-out to be one of the factors affecting human development, and it has two key features namely education and health. But, many studies that have been done in the past for countries economic growth and development in relation to human capital in most cases considered education alone and less or no thoughtfulness have been given to health. However, recent studies show that health is a crucial component of human capital and as a result health has been included in the field of the growth model. On the other hand, enhancement in the healthcare system of a country results in human capital growth. This growth will occur from the side of capital wealth accumulation, and health enhancement through longevity and increased labour productivity. Hence, the resultant effect will be manifested in human development. Besides, different criteria for health are considered when studying health and human development which include life expectancy and government health expenditure (Razmi et al., 2012). The study further stated that the cost of governmental health expenditures, as well as government’s spending on education and human resources, will absolutely improve quality and increase life expectancy and longevity. In addition, government’s expenditure on health will result in stimulating public health and health capital accumulation frequency, and as well have an impact on human capital development and economic growth.

Moreover, human development is regarded as the method of expansion preferences for human and the most imperative of these include a long and healthy life, education, accessibility to a good standard of living, other preferences include political freedom, assured human rights and dignity breath (Ranis, 2004). From this point of view, human development can be perceived from two broad features; the first is linked to human capabilities, such as better-quality health, knowledge and skills, and another feature is connected to the prospects and benefits of human capabilities which include political, social and cultural issues. Similarly, Opreana & Mihaiu (2011), submitted in their research that there is an association between health expenditure and human development. They revealed that life expectancy and longevity were one element of the human development index. Therefore, it was established that there is a strong relationship between health and human development.

In the same manner, health expenditure in public and private sectors is regarded as an important factor in human development and the study resolved that in countries where private sector funding is enhanced, the efficiency of public health expenditure is larger. Hence, the findings show that there is a two-sided relationship between health expenditure and human development because the cost for the health will increase human development

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and human development, on the other hand, will increase health promotion. Adelle (2011), in a comparable study demonstrated that even though life expectancy and GDP per capita have various variables that give cause to them, healthy people are equally indispensable. A greater percentage of public expenditure on health care out of total expenditure in a country appears to be more effective in attaining higher GDP per capita and longer life expectancy which improve human development through a healthier and further productive labour force. The finding shows that the countries who commit more than half of their expenditure on health have longer life expectancy from birth and higher human development indices than countries that contributed less than half of their expenditure on total health care.

3. The Impact of Healthcare expenditure in Nation Building

Aggregate health expenditure encompasses both the public and private sources of health care funding.

Government funding for health care mainly includes capitals from government financial plan and social security schemes while private funding comprises private health insurance and out-of-pocket payments mostly.

Universally, the public sector is considered to be the main source of health funding. In particular, public health expenditure persisted to be quite high in advanced and high-income countries when compared to the developing and low-income countries (SESRIC, 2013). According to Scherer and Devaux (2010) numerous methods of private expenditure on longevity are determined positively and negatively by public expenditure outcomes.

Hence, the extent to which healthcare spending is funded by the government indicates that political issues contribute a major role in the explanation of health care expenditures (Potrafke, 2010). To date, no agreement in the literature has been reached on the effect of public health funding on healthcare expenditure. Some study claimed that it has a positive effect, but Okunade et al. (2004) and Moscone and Tosetti (2010) claimed it has a negative effect on growth. Thus, private healthcare funding has been examined through health insurance variables. Scherer and Devaux (2010) stated that the amount of expenditure on private health care is correlated with the capability to pay, not to the necessity for healthcare. Also, several methods of private expenditure on longevity are determined positively and negatively by public expenditure outcomes and as a result, it is essential to examine private and public features of expenditure distinctly. However, from the microeconomic theory, the comparative price of health has been recognized as an alternative driver of healthcare expenditure. Also, Van Elk et al. (2009), Pomp and Vujic (2008) and Hartwig (2008) reiterate a positive effect for the so-called Baumol effect (health sector has a lower productivity than the other sectors, and it will reserve comparative prices of health higher, such that a rise in price reduces volume and raises real healthcare expenditure in the long run.

4. Conclusion

As discussed earlier above from the relevant literature it is well-thought-out that the increment in the funding of health care will bring a desirable economic enhancement to the countries. So, government should not totally leave healthcare in the hands of private entities but should be able to provide a subsidized and affordable form of healthcare service to the populace, because, many people have been impoverished due to snowballing rising cost of healthcare and in the long-run resulted in many losses of lives. To this end, this paper recommends strong government involvement in the provision of healthcare service through outlining and devising suitable health care policies that will be beneficial to the citizenry. On the other hand, future studies on health care expenditure growth could further expand the study by empirically test different variables and related health indexes with GDP to forecast new approach to funding health care by the government and relevant institutions.

Acknowledgements

The authors wish to thank the Universiti Sains Islam Malaysia (USIM) and Permodalan Nasional Berhad (PNB) for supporting this research under the Research Code: USIM/PNB/FEM/30/40914.

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