The Relationship Between Health Spending and Social Spending: A Surprising Finding

In a paper published in Health Affairs today, a team of HGHI researchers reports a surprising finding: There appears to be a strong, positive relationship between social and healthcare spending. That is, countries that spend more on social programs also end up spending more on health care.

This finding — by Irene Papanicolas, Ashish K. Jha, Liana Woskie and others — is at odds with a commonly believed narrative that when countries spend less on social services, they end up spending more on healthcare. The reasoning is that when countries underinvest in social spending they fail to address the underlying causes of illness, which leads to a sicker population that spends more money on healthcare.

Below, we explain what researchers thought going into this work, what they found, and what it means. You can find the full paper here.

Social Spending and Health Spending: Contextualizing a Surprising Finding.

What we thought: the narrative

When countries spend less on social services, they end up spending more on healthcare.

The mechanism is, in broad terms, that when countries underinvest in social spending they fail to address the underlying causes of illness, which leads to a sicker population that spends more money on healthcare.

The U.S., therefore, spends much more on healthcare because we fail to invest adequately in social services.

What we found: the data

First, the U.S. does not actually spend much less than other high income (OECD) countries on social programs. The US spends 16% of GDP whereas the OECD mean is 17%.
We know, from prior work, that people in the U.S. don’t use more healthcare on average than other countries – so a sicker population using more healthcare can’t be the explanation for why the U.S. spends so much more than other countries on healthcare.
In fact, there appears to be a strong, positive relationship between social and healthcare spending. That is, countries that spend more on social programs also end up spending more on health care.
Even when we examine changes over time – countries that increased their spending on social services subsequently see increases in healthcare spending.

What does this mean?

Countries that value spending money on health are likely the same ones that value spending on education and other social services.

At the national level, social spending and health spending are not substitutes; when a country increases one, it should not expect the other to fall.

What this does not mean

One interpretation of these findings is that investing in social services is not “worth it” but that would be wrong.

Indeed, social spending is associated with better health outcomes; countries that spend more on social services have better health outcomes.

This is also true for healthcare services – countries that spend more on healthcare services have, on average, better outcomes.

Final take-aways

The US does spend nearly twice as much as the OECD average on healthcare.

However, the US is average when it comes to spending on social services.

Social spending – especially on poor and vulnerable populations – can be extremely efficient and valuable. It is often an excellent way to improve health and well-being.

There is little reason to believe that social spending will meaningfully reduce healthcare spending on a large scale.

We should invest more in social spending to improve the lives and health of our population. Not because it will save money in the healthcare system.