Do increases in medical spending improve health outcomes? To answer this question, analysts need to quantify the net value of medical spending and measure the productivity of medical care with the output of improvement in survival and quality of life, thereby deducing for what medical conditions the “bang for the buck” is greatest and for what conditions spending outstrips gains in health improvement.

This condition-specific, quality-adjusted net value approach to health spending is known as a “satellite account for health” because it “orbits around” the national income and product accounts that include aggregate health spending to provide a clearer picture of productivity in the health sector. Thus far, researchers have applied this account to the U.S. health sector only, but it would be highly beneficial for many economies. One notable beneficiary would be South Korea, one of the most rapidly aging societies globally. Now new research by Karen Eggleston, the director of APARC’s Asia Health Policy Program, studies the link between medical spending and health outcomes in South Korea, providing evidence on the productivity of medical spending over recent decades.

The research, published by the East-West Center, develops an estimate of the net value of Korean medical spending, which has outpaced most other countries in recent decades. To generate this estimate, Eggleston compares the gains in life expectancy at birth to the increases in medical spending for 2000–2019. Data comes from Korean lifetables and medical expenditures per capita, available from the Korean Statistical Information Services.

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Eggleston shows that, even with the most conservative assumptions ($50,000 per life-year and only 10 percent of health gains due to medical care), the net value of Korean medical spending is positive and substantial. Korean life expectancy at birth increased from 76 in 2000 to 83.3 in 2019, while lifetime medical spending increased by over $19,000. The value of 7.3 additional years of life far outweighs even this rapid increase in spending, implying substantial productivity growth in Korea’s health sector.

Moreover, evidence on condition-specific spending changes and health improvements suggests that Korea’s rapid spending increases yield significant net value. Eggleston’s research indicates that improvements in survival for key conditions afflicting Koreans, such as stroke and cancer, point to productivity gains. “Korea could be a pioneer in developing a national health account that accurately measures net value by medical condition,” she writes.

Condition-specific metrics of health gain per won spent on treatment can help to guide the allocation of investments to promote longer, healthier lives. In the future, analysts could also link condition-specific improvements in survival and morbidity to earnings. Such linkage would particularly benefit South Korea, where focusing on the productivity of older adult employment is crucial given its high labor force participation and relatively low income of older Koreans.

Eggleston advocates for the Korean government to develop a national satellite account for health that can provide valuable evidence for prioritizing investments to address the country’s most pressing health challenges so that productivity improvement will contribute to longer, healthier lives. “By linking National Health Insurance and health outcome data, Korea could develop an accurate measure of medical productivity and a more accurate measure of overall economic productivity, while pioneering development of ‘health satellite accounts’ for overall populations,” Eggleston argues.

The Walter H. Shorenstein Asia-Pacific Research Center (APARC) is pleased to invite applications for a suite of fellowships in contemporary Asia studies to begin fall quarter 2023.

The Center offers postdoctoral fellowships that promote multidisciplinary research on contemporary Japan and contemporary Asia broadly defined, inaugural postdoctoral fellowships and visiting scholar positions as part of the newly launched Stanford Next Asia Policy Lab, and a fellowship for experts on Southeast Asia. Learn more about each opportunity and its eligibility and specific application requirements:

Postdoctoral Fellowship on Contemporary Japan

Hosted by the Japan Program at APARC, the fellowship supports research on contemporary Japan in a broad range of disciplines including political science, economics, sociology, law, policy studies, and international relations. Appointments are for one year beginning in fall quarter 2023. The application deadline is December 1, 2022.
 

This press release was originally published by the University of Tokyo. It discusses a new study, published by Lancet Public Health and co-authored by researchers from the University of Tokyo along with FSI Senior Fellow Karen Eggleston, director of the Asia Health Policy Program at APARC, and Jay Bhattacharya, Professor of Health Policy and director of the Center for Demography and Economics of Health and Aging at Stanford.

A new detailed microsimulation, using a database of 40 million people, has examined the future of Japan’s aging population up to 2043. It projects that more people will live longer, and that overall years spent living with dementia will decrease. However, the model highlighted the diversity of impacts on different segments of the population, as Japanese women with a less than high school education aged 75 and over may be disproportionately affected by both dementia and frailty. Better understanding where health gaps like this exist can help inform public health planning, to minimize future economic costs and support those most in need.

Taking care of the older members of society is a common concern around the world. Japan is famous for its long-lived residents, the number of which continues to rise. In 2020, almost 30% of the Japanese population was aged 65 years or older, and this age group is not projected to peak until 2034. Caring for people with age-related ailments, such as dementia and frailty, poses a challenge both to individuals and public health care systems.

Microsimulation models, which are computer models that can provide detailed analysis on an individual basis, are currently used to project future population health in some countries, such as the U.K. and the U.S. Professor Hideki Hashimoto and researchers at the University of Tokyo, along with researchers from Stanford University in the U.S., wanted to create a new microsimulation model for Japan, which would take into account more diverse conditions than had been considered before.

“We developed a new Japanese microsimulation model that accounts for 13 chronic conditions (including heart disease, stroke, diabetes, depression and dependency), as well as frailty and dementia,” explained Hashimoto. “Using an ultralarge data system, we were able to ‘follow’ a virtual cohort of more than 40 million people aged 60 and over from 2016 to 2043.”

According to Hashimoto, projections of aging in Japan usually rely on the “average” status of older people and so don’t consider the diversity of the population. “I believe that problems of aging are a matter of health gaps over the course of people’s lives,” he said. “Our projection brings attention to a widening health gap among older people. It highlighted that women with a less than high school education aged 75 or over are more likely to be affected.”

Identifying where health gaps like this exist could be used to better inform public policy, not only about health care but other influential aspects of life. “Japan’s case may suggest that improvement in educational attainment, as well as population health, could be a key to making a healthier and more manageable aging society,” said Hashimoto.

Positively, this study shows hope for a future where many people live longer and more healthy lives. “People might believe that an increase in cases of dementia is inescapable, given population aging. However, in this study we found that in Japan, despite an aging population, the number of people with dementia is expected to decrease over the next two decades,” said Hashimoto. “Population aging does not necessarily mean an increase of social burden for care, but it does bring a diversity of problems that requires careful study and science-based policy attention, to close the health gap.”

The researchers found that countries with a higher density of skilled health workers could expect to have better health outcomes across all six measures of health outcomes. Unsurprisingly, high-income countries generally enjoy a high density of skilled health workers and world-leading health outcomes, whereas low-income countries suffer from a shortage of health workers and poor health outcomes. A higher density of skilled health workers was also significantly correlated with a lower level of COVID-19 excess deaths per 100,000 people, highlighting the importance of the health workforce under the pandemic.

A Cause and Effect of Socioeconomic and Health-System Developments

The cross-country results confirm the importance of the health workforce in affecting multiple health outcomes. “Therefore, investment in health workforce should be an integral part of the strategies to improve health outcomes and achieve health-related SDGs for every country, especially for low- and lower-middle-income countries,” write Eggleston and Liu. The vast majority of these countries (about 80%) are tremendously off track to meet the health-related SDGs by 2030.

From a global perspective, the data underscores the wide disparities in health outcomes between different countries, especially between those most and least advantaged (e.g., healthy life expectancy at birth of 44.9 years in the Central African Republic compared with 76.2 years in Singapore).

It is difficult, however, to improve disparities in health outcomes between countries in different income categories by improving the density of the health workforce alone. The reason is that socioeconomic factors, as the data confirms, are critical determinants of health outcomes. For example, higher health expenditure per capita and the poverty headcount ratio have significant associations with all six health outcomes, while female education is interrelated with broader social determinants of health.

Thus, the relationship between the health workforce and health outcomes is the cause and effect of broader socioeconomic and health-system developments. “A strong health workforce contributes to better health outcomes and is itself a manifestation of a country’s previous investments that reduced poverty, improved health outcomes, and laid the foundation for a robust health system,” Eggleston and Liu explain.

Investment in the health workforce is an urgent task, the researchers conclude. It should be an integral part of strategies to achieve health-related SDGs, and these strategies, in turn, should include means to achieving complementary non-health SDGs related to poverty alleviation and expansion of female education.