Academic journal article Applied Health Economics and Health Policy

Productivity Loss Resulting from Coronary Heart Disease in Australia

Academic journal article Applied Health Economics and Health Policy

Productivity Loss Resulting from Coronary Heart Disease in Australia

Article excerpt

Background

Coronary heart disease (CHD) is the largest single cause of death in Australia, claiming 23 570 lives, or 18% of all deaths, in 2005 alone.[1] It was the leading specific cause of disease burden measured in disability-adjusted life-years for men and the second leading specific cause for women in 2003.[2] CHD, along with other cardiovascular conditions, has been identified as a national health priority area, in recognition of the scale of the disease and its impact on population health.[3]

CHD also places a heavy financial burden on the country's health system. The direct healthcare costs of CHD to the health system were estimated to be Australian dollars ($A)1.47 billion per year in 2000-1 and $A1.76 billion in 2004.[4,5] However, the full economic impact of the disease extends beyond direct healthcare costs. Studies conducted in the UK and the enlarged EU showed that CHD also incurred enormous productivity losses.[6,7] To date, there has been no systematic study assessing the productivity loss attributable to CHD in Australia. The purpose of this study was to conduct an economic evaluation of the productivity loss resulting from CHD-related morbidity and mortality in the country. The costs of informal care associated with CHD disability were also considered.

Methods

Productivity Loss

The economic evaluation was based on the principles of shadow pricing in cost-benefit analysis in the broad context of welfare economics.[8,9] The loss of unpaid labour inputs associated with CHD-related premature mortality and morbidity results in losses of outputs or productivity as defined in this study. Where productivity loss is replaced by increasing either working hours or employment, the shadow price for labour inputs (w) is equal to the marginal value of leisure forgone (equation 1):

[Figure omitted.]

where uL' specifies the marginal utility of leisure time, and [varepsilon] is the marginal utility of money, assuming a competitive market. When utility or disutility gained from working itself is considered, the marginal value of leisure is given as shown in equation 2:

[Figure omitted.]

where uW' specifies the marginal amenity from working. With the existence of involuntary unemployment in real market conditions, the shadow price for labour input is estimated as shown in equation 3:

[Figure omitted.]

When productivity loss is not replaced, the shadow price for labour inputs is equal to the value of the marginal product of labour (equation 4):

[Figure omitted.]

where dP denotes the change in labour output and dL the change in labour input. With deviations from market competition and the existence of taxation, the shadow price for working time lost is greater than or equal to the labour costs or the full wage (equation 5):

[Figure omitted.]

where wf denotes the full wage rate. The labour costs (or the full wage) are defined as employee gross earnings, plus all employer on-costs such as payroll tax, superannuation contributions and fringe benefit tax.

We estimated the productivity loss due to CHD-related premature mortality and morbidity by considering two scenarios: (i) without and (ii) with replacement of the productivity loss resulting from the disease. The former is also known as the human capital method and the latter the friction method.[10]

The Human Capital Method

Productivity Loss Due to Coronary Heart Disease (CHD)-Related Mortality

Under the human capital method, productivity loss resulting from CHD-related mortality is estimated from the age of premature death to the age of retirement (set at 65 years in this study). We proposed the model shown in equation 6 to quantify such loss:

[Figure omitted.]

where P is total productivity loss due to CHD-related premature mortality; i is the number of working years an individual loses before retirement due to CHD-related mortality; r is the discount rate for future earnings due to time preference; C is average annual labour costs per employee; Ni is the number of people who die before retirement age, with each person losing i number of working years; ai is the economic activity rate for the labour force that will lose i number of working years if premature mortality occurs before retirement age; and ui is the unemployment rate for the labour force that will lose i number of working years if premature mortality occurs before retirement age. …

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