There is a common misconception that public health initiatives save money in the long run by preventing healthcare costs further down the line. Generally speaking, this is not true because they typically increase longevity at old ages when healthcare costs are highest. As Jane Hall explains in the Oxford Handbook of Health Economics:
Although it is frequently argued (but not by economists) that prevention will save expenditure on future treatment, the current body of evidence demonstrates that it is more likely to generate additional healthcare costs.
It should go without saying that the benefits of health cannot be boiled down to a hard-headed economic calculation. If we wanted to save money, we would subsidise cigarettes and encourage pensioners to take up motorcycling. Health has a value of its own. But as with most things of value, it costs money.
So it is with public health measures. A minority of them, such as some vaccinations, are cheap to implement and prevent expensive healthcare in the long run. Most, however, are relatively expensive to implement and create additional costs in the long term.
Since most people do not fully appreciate this, they won’t have been surprised to read yesterday that ‘cutting spending on services that promote a healthy lifestyle is a “false economy” that will cost £7.6 billion to put right’ (The Sun). This related to an article published in the Journal of Epidemiology and Community Health which looked at the return on investment of various public health measures. Written by five people who happen to work in the public health industry, the article concluded that ‘for every £1 invested in public health, £14 will subsequently be returned to the wider health and social care economy.’
The reference to the ‘wider health and social care economy’ is a clue that we are not dealing with hard cash here. Nobody could argue with spending a billion pounds on public health if it extended people’s lives and saved £14 billion, but that’s not the proposition.
In reality, the investment requires real money that comes out of the taxpayers’ pocket whereas the return is measured by giving a theoretical monetary value to a year of life and multiplying it by the number of years that are thought to be added by public health interventions. In this instance, it was assumed that an extra year of life is worth £60,000. So, if a £2 billion preventive health initiative leads to one million people living for an extra six months, the return on investment is £30 billion.
That is all well and good, but it is not a £30 billion saving to the taxpayer. The cost is financial whereas the benefits are non-financial, albeit put in monetary terms for the purposes of an exercise. There is no financial return on the investment. On the contrary, by extending people’s lives the intervention will almost certainly lead to higher costs further down the line.
This is not to say that the intervention should be rejected. Nor does it mean that the intervention is not cost effective. The reason we put a monetary value on a year of life is to allow us to judge the cost effectiveness of one project over another. Resources are always limited and since the goal of health spending is to improve health, it makes sense to focus on the projects that provide the biggest gains for the lowest cost.
But we should not lose sight of the fact that the £60,000 valuation of a year of life is a convenient fiction created for the purpose of distributing specific resources. It is not a cheque that can be cashed. It is not a saving to the taxpayer and it does not reduce NHS costs.
In my example above, the real proposition for taxpayers is: ‘Do you want to spend £2 billion to prolong the lives of a million people by six months, even though it will require further spending later on?’ Instead, they are being presented with a false narrative that says: ‘Do you want to spend £2 billion to save £30 billion later on?’
The authors acknowledge that a 14 to one return on investment ‘would sound too good to be true in the financial world’, but they insist that ‘public health is different’. It certainly is different. In the financial world a loss is recognised as a loss, not a saving.
The authors’ real gripe is with the government’s £200 million cut to the public health budget which they claim will create an ‘opportunity cost’ of £1.6 billion, based on a slightly more modest assumption of an eight to one return on investment. The authors quickly morph this ‘opportunity cost’ into a financial loss to taxpayers and conclude that the £200 million cut is a ‘false economy which will generate many billions of additional future costs to the ailing NHS and wider UK economy’.
That is not what the evidence shows at all, but it was how the article was reported when it was published yesterday. The British Medical Journal announced in a tweet that ‘Every £1 spent on public health in UK saves average of £14’. A director of public health tweeted that ‘£200m cuts to public health budgets in England could cost NHS £1.6bn’. The Local Government Association claimed that more spending on public health can ‘ease pressure on the NHS’ and ‘ultimately saves money for other parts of the public sector’.
This is not just wrong. It is the very opposite of the truth. And if a £200 million cut seems large, bear in mind that the government spent £3,380 million on public health this financial year. It is hardly being cut to the bone. The only legitimate purpose for the monetisation of life years in health economics is to identify which projects are most cost effective. Instead of using this methodology for a purpose for which it was not intended, let’s use it to find the least efficient projects and ensure that the cuts fall there.