Saturday, April 16, 2011

Might growing health care costs be a good thing?

Everybody is complaining about the ever-rising costs of health care. But could it be that this is actually a good thing, because it means we can afford to spend an ever-rising share of our dispensable income on our health?
While there is undoubtedly some misuse of our healthcare dollars, and money is wasted on unnecessary beauty operations, or even worse, on lawyers filing malpractice suits, I think that the overall fraction of dispensable income a society can afford to spend on healthcare is a good benchmark for gross national happiness.
There are many variables influencing happiness, such as income, being married, and age, but being in good health has been found to be one of the most reliable predictors of happiness, as has been shown by many researchers. Countries which are able to spend a large amount of their income on healthcare should therefore be happier.

Does national happiness and healthcare spending indeed correlate? Because I could not find statistics, I did a quick calculation myself. I looked up mean health care spending per head in PPPS (purchasing parity adjusted dollars) of the OECD countries in 2001. I then compared these numbers to the gross national happiness index as listed on the World Database of Happiness. As a control variable in my model I took country size, looking up the population numbers on Wikipedia. Below are the actual numbers, showing that the US and Switzerland are the record spenders on healthcare per head, but are also fairly happy, although small countries like Denmark, Iceland, and Luxembourg are even happier, while spending less money on healthcare.

When I did a linear multivariate regression with these numbers, using health spending per head and country size as independent variables, and happiness as the dependent variable, I found an adjusted R squared of 0.58, with standardized significant coefficients of 0.83** for health spending per head, and -0.38** for population size. To put this in simple language, this means that 58% of the happiness of a country is explained by the health care spending and the country's size. The more a country spends on individual health care, and the smaller the country is, the happier its inhabitants are.

What’s the conclusion for the US? Well, this means investing money in health care actually might not be such a bad thing, but please, allow for local autonomy, giving subgroups of the population a say on how the money is being spent.


  1. Maybe you should look at the happiness level in correlation to healthcare spend as well - how much do you need to spend per point of happiness? Also you'd need to take into account a cost comparison per country - is it more expensive to get the same level of treatment?

    It's an interesting and good health does contribute to happiness, but I think it is difficult to draw direct causality between cost and happiness.


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