Health spending as an investment

Indonesia's post-decentralization health system has seen an increase in public spending in health. About Rp 30 trillion (US$3.21 billion) is allocated for health in the current national budget, almost twice the amount allocated in 2006.

Nonetheless, this only accounts for 3.5 percent of the total budget, well below the 5 percent limit mandated by the 2009 Health Law. Likewise, average local government spending on health remains below the mandated minimum of 10 percent of the total budget. Why?

Obviously, there is no simple answer to this question, but perhaps the term "spending" implies something that should be kept at the minimum.

Hence, perhaps a different perspective on public health expenditure could be used as additional lines of arguments for increasing the government's spending on health.

Who knows? First, let me start by rewording the last phrase as "increasing the government's investment in health".

Investing in health is, of course, nothing new. A 1993 World Bank report carried the exact same title, but nonetheless, I think this is a good time for us to review some of the reasons why we want to invest in health.

Health can be viewed as an important investment in human capital that returns as an increase in the level of economic growth.

There are at least four mechanisms of increasing economic levels through which public health improvements can be considered: An increase in labor productivity, an increase in educational achievement, an increase in investment and a "demographic dividend".

Healthier people mean a healthier workforce with better labor productivity. It is quite obvious that a healthy employee has higher physical and mental capabilities to perform his or her job compared to sick counterparts.

Healthier employees would also miss fewer days of work and in turn would increase their value as a production input. In other words, health can be considered an important part of human capital.

As an example, the increase in per capita income in the UK and Korea was shown to be significantly influenced by the increase in the nutritional status of their labor forces.

An increase in educational attainment could also be expected from a healthy population. An increase in health translates to an increase in life expectancy and people who expect to live longer would expect a higher benefit of education and, hence, would have a higher incentive to enroll in schooling.

Improvements in health are also usually followed by a reduction in fertility, leading to a smaller family size and a shift in parents' focus to the improvement of their children's wellbeing, among other things, through education.

In addition, healthier children have higher learning ability and miss fewer days of school.

All in all, the increase in school participation would then lead to a higher quality, more productive workforce that contributes to higher economic growth.

In addition to schooling, people who expect to live longer have higher incentives to save and invest money for future use, whereas people with poorer health are not as motivated to save.

Poor health also directly prevents saving because money is needed to pay for healthcare.

Evidence also shows that countries with a healthy workforce are more attractive for foreign direct investment. All would lead to an increase in economic growth.

The increase in a country's health status usually leads to a fast decline in mortality, but is not usually accompanied by a simultaneous decrease in fertility.

This delayed fertility decline would lead to a boom in the size of the population, and also a change in the population's age structure. The latter would eventually lead to a period of low dependency ratios, where the population's working age group is larger, a lot larger, than the non-working age group.

Considering that the working age group produces economic resources, whereas the very young and the very old use them, this period of low dependency ratios provides the community with a "demographic dividend" that promotes economic growth.

The economic growth of East Asian countries, for example, is attributable to this demographic dividend.

Evidence shows that the net effect of an increase in public health on economic growth is positive: the higher the health status, the higher the growth rate.

Of course, all of the above positive correlations assume that appropriate policies are available to capture the advantages of increases in public health, such as policies on education to accommodate an increase in school participation and economic policies to absorb the increasing size of the workforce.

For now, at least, suffice it to say that more spending, pardon, more "investment" in public health would be good for the economy.