McKinsey: Better healthcare a $12 trillion economic opportunity

15 July 2020 Consulting.us

Set in the context of Covid-19, a new McKinsey & Company report details just how much of an impact improvements in global health can have. The consulting firm estimates that better health could add $12 trillion to the global economy by 2040.

McKinsey uses the latter half of the 20th century as a reference point, where the advent of vaccines, antibiotics, health technology as well as better hygiene and nutrition practices all contributed to economic prosperity. At a macro level, improved health meant that people could live longer and be more productive, consequently expanding the workforce. McKinsey points out that a third of economic growth across developed economies in the 20th century can be linked to health improvements.

At an individual level too, health has a direct bearing on income, owing to a better state of mind, higher productivity and a better standard of living. The report highlights that studies from recent years have shown that health might be equivalent to education in terms of contribution to income. This in turn has a positive bearing on economic growth, putting health at the center of a virtuous cycle of micro and macro economic development.

Better health could add $12 trillion to GDP by 2040

Provided that health across the global population continues to improve over the next two decades, McKinsey estimates that an additional 230 million people would survive by 2040, significantly bolstering the workforce. Overall, people are expected to be healthier and consequently more productive.

The combined economic benefits of a bigger and more productive labor force could add up to an 8% jump in the GDP leading up to 2040, according to the report, adding $12 trillion in absolute terms. These economic gains relate to better health alone, and exclude other regular and outstanding advances in the global economy.

No doubt, episodes like the Covid-19 pandemic are likely to occur, which will throw global health off balance. However, as the authors of McKinsey’s report point out, “improving global health would also improve the resilience of societies and economies when they face unexpected health shocks such as pandemics.”

Returns on investment in better health

Underlying all these positive aspects of better health is the fact that improving health comes with no additional costs to the global economy. In fact, the economic gains from better productivity in the developed world are likely to level out the costs of healthcare advances. In numerical terms, McKinsey states that every $1 invested in healthcare could yield an economic return of up to $4. 

That being said, the low cost and high returns is conditional to actual health improvements, which is not an easy task. While advances in healthcare play a crucial and unequivocal part, better health and improved productivity across a broader base of the population requires fundamental changes to lifestyles, behaviors, and structural inequality.

McKinsey reports that a third of all health improvement has to do with social and behavioral interventions. This includes initiatives that promote a balanced and nutritious diet, as well as support programs that help people reinvent their lifestyle to increase physical activity, manage stress, change eating habits, and reduce substance intake.

Economic benefits of better health by region

Initiatives in this regard range from the development of nutritional supplements, to fitness tracking technology, support groups, or even policy interventions such as taxation on tobacco and alcohol. These efforts are picking up momentum, although their effects will take time to manifest. At the same time, while they could have tremendous benefits, there is no one-size-fits-all set of interventions that can improve health.

McKinsey points out that health has distinctly economic and demographic dimensions to it. For instance, in developed economies where healthcare is advanced, infectious diseases have largely been mitigated with vaccinations and higher standards of hygiene. This is under normal circumstances, notwithstanding the current pandemic. In these economies, more chronic or age-related illnesses such as diabetes and specific forms of cancer are the biggest threat, mainly owing to ageing populations.

In other economies, the healthcare system remains underdeveloped, and the threat to life from infectious diseases persists on a regular basis. McKinsey highlights that the nature of illness across various regions as well as its impact on life, labour participation and productivity will all have a bearing on how improved health will benefit the economy.


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