2.2  Previous studies

Numerous cost of illness studies have been conducted, although very few of these relate to New Zealand. Where these New Zealand studies exist they often estimate the costs for only a specific disease rather than the cost of ill health as a whole and, owing to a lack of person-level data, often adopt a top-down approach.[3] The inclusion of the health module in SoFIE, and the linking of these responses to hospital inpatient information provides an opportunity to estimate the costs of ill health using a bottom-up approach.

One example of acost of illness type study for all illnesses in New Zealand that used a bottom-up approach was conducted by Southern Cross Medical Care Society (2009). This study aimed to assess the costs to employers of illness. It therefore only included costs owing to absenteeism and presenteeism, rather than the wider costs to the economy from people not working, working fewer hours or as a result of treatment costs. The results were based on a small online survey of New Zealand workers which asked general lifestyle questions along with a number of health-related and workplace-related questions. Using these results the cost of illness to New Zealand employers was estimated to be over $2 billion a year across the whole workforce.

There have been numerous cost of illness studies for countries outside New Zealand using various methodologies based around a bottom-up approach. Many focus on the direct costs, as opposed to trying to estimate more difficult to measure indirect costs, such as lost output. However, those studies that do include such estimates suggest that productivity losses associated with lost workdays (absenteeism) and reduced on-the-job productivity (presenteeism) may be substantially more than the treatment costs of ill health. A recent US study estimated that, in 2003, the combined (direct and indirect) economic impact of selected chronic diseases was US$1.324 billion (around 12.5% of GDP).[4] However, the productivity losses (indirect costs) accounted for around 80% of this estimate; around 10% of US GDP (DeVol and Bedroussian, 2007).

The output lost owing to presenteesim alone is thought to be immense. Some literature suggests that for some diseases these losses can be up to 15 times larger than for absenteeism (Newton, 2000, in DeVol and Bedroussian, 2007). DeVol and Bedroussian draw similar conclusions; that is 79% of the indirect costs are a result of individual presenteeism; that is, around US$828.2 billion. A further US$80.2 billion of the indirect costs are a result of caregiver presenteeism.

Research by Goetzel et al. (2004) used the data from a large medical/absence database, along with findings from several productivity surveys, to estimate health, absence, disability and presenteeism cost estimates for certain health conditions. They concluded that presenteeism costs were higher than medical costs in most cases, and represented 18% to 60% of all costs for the 10 conditions.[5]

What is also clear from the literature, however, is that estimates of the economic impact of health vary significantly. This is an indication of the difficulty involved in estimating the indirect costs. The variation can largely be explained by the methodology used to produce the estimates, the assumptions made and also the definition of ill health that is adopted. As an example, another US study estimated that in 2003 labour time lost owing to health reasons was equivalent to lost economic output totalling US$260 billion per year (Davis, K., Collins, S. R., Doty, M. M., Ho, A. and Holmgren, A. L., 2005). This research used a wage-based method to estimate the lost output. This is well below the estimate of US$1,047 billion from the DeVol and Bedroussian study, which used a GDP-based approach; only estimated lost output for those already in the workforce; and covered a narrower definition of ill health – focusing on a selection of chronic diseases. DeVol and Bedroussian (2007) also used their method to estimate the lost output using a wage-based method. Using this method the estimate of the economic impact of selected chronic diseases fall from US$1.324 billion to US$464 billion. Further, unlike the DeVol and Bedroussian results, the study by Davis et al (2005). estimated absenteeism to account for a higher proportion of lost output than presenteeism.

More generally there has been much work that indicates a significant relationship between health and labour market behaviour in New Zealand. Recent work by the New Zealand Treasury concluded that health is significantly related to labour force participation, using various health measures and even after accounting for certain types of endogeneity (Holt, 2010). Those people who experienced negative health shocks into fair or poor health, or who have poorer self-rated health were found to be less likely to participate in the labour force. The reduction in the chance of labour force participation associated with poor health appeared to be larger for working full, as oppose to part, time.

Another recent piece of research conducted by the Treasury using person-level data focusing on older New Zealanders (aged 55 to 70), also identified a significant relationship between health and labour force participation (Enright and Scobie, 2010). It concluded that, regardless of the various health measures tested, a significant reduction in labour force participation was associated with poorer health status.