Health expenditures spent for prevention, economic performance, and social welfare

Fuhmei Wang, Jung-Der Wang, Yu-Xiu Huang

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. 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. 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. 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.