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Health as an economic engine: evidence for the
importance of health in economic development.
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| Article Type: | Report |
| Subject: |
Public health
(Evaluation) Public health (Economic aspects) Economic development (Evaluation) Economic development (Health aspects) |
| Authors: |
Mirvis, David M. Chang, Cyril F. Cosby, Arthur |
| Pub Date: | 06/22/2008 |
| Publication: | Name: Journal of Health and Human Services Administration Publisher: Southern Public Administration Education Foundation, Inc. Audience: Academic Format: Magazine/Journal Subject: Government; Health Copyright: COPYRIGHT 2008 Southern Public Administration Education Foundation, Inc. ISSN: 1079-3739 |
| Issue: | Date: Summer, 2008 Source Volume: 31 Source Issue: 1 |
| Product: | Product Code: 8000120 Public Health Care; 9005200 Health Programs-Total Govt; 9105200 Health Programs; 9008000 Economic Programs-Total Govt; 8515300 Development NAICS Code: 62 Health Care and Social Assistance; 923 Administration of Human Resource Programs; 92312 Administration of Public Health Programs; 926 Administration of Economic Programs; 5417 Scientific Research and Development Services SIC Code: 8000 HEALTH SERVICES |
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| Accession Number: | 180948028 |
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ABSTRACT Most discussions on the relationships between health and economic conditions have focused on the impact of differences in personal finances or national economic conditions on health. Recently, however, the role of health as an 'economic engine' has been promoted. This paradigm proposes that better health leads to economic development. Evidence from historical, national, and transnational studies have shown that improved health increases economic growth through impacts on micro- and macro-economic factors. In this review, we will summarize the evidence supporting these concepts as a basis for discussing their implications for underdeveloped regions within the United States. INTRODUCTION It is commonly assumed that the relation between wealth and health is fully or predominantly unidirectional, that is, improving economic conditions will lead to improved health. Epidemiologists, economists, and others have repeatedly documented that richer nations generally have better overall health outcomes than do poorer ones, and that more affluent people within a country have better health than do poorer groups (Preston, 1975; Marmot, 2002). Investigators and public health advocates have also explored and policy makers have promoted the reverse of this relation. In this newer model, health is an 'economic engine.' That is, better health leads to and may, in certain cases, be a necessary prerequisite for economic development. Based on this concept, the World Health Organization (WHO), through its Commission on Macroeconomics and Health (CMH), and the World Bank have promoted direct investment in health in developing nations as a means to improve health as well as economic conditions (CMH, 2001; World Bank, 2007a) In this review, we will first briefly summarize the evidence for the link leading from increased wealth to improved health, and then examine, in some detail, the evidence that supports the 'health as an economic engine' paradigm. The evidence for this relationship is derived, largely, from studies focusing on developing nations. This discussion will provide a basis for later considerations of the relevance and the importance of these concepts within the United States, the primary focus of this symposium. HOW WEALTH LEADS TO HEALTH The direct relation between income and health has been documented at the international and national levels. At the international level, Preston (1975) described the direct relation between a nation's gross domestic product (GDP) and the average life expectancy of its population. Infant mortality, life expectancy, and general health improve as per capita income rises, especially among nations with the lowest per capita incomes. The income elasticity of child mortality rates has been estimated to be between -.2 and -.4, indicating that a 10% increase in per capita income is associated with a 2% to 4% fall in child mortality (Pritchett & Summers, 1996). The data suggest that a 1% increase in per capita income in developing countries may result in as many as 33,000 fewer childhood deaths each year (CMH, 2001). Within nations, including the United States, people with higher incomes and better overall socioeconomic conditions have, on average, better health outcomes than do less affluent persons. The National Longitudinal Mortality Study (Sorlie, Backlund, & Keller, 1995) showed that men in the United States with family incomes in the top 5% of the income distribution have life expectancies that are 25% longer than do those in the bottom 5%. These increases form a gradient, with greater income being associated with proportionate increases in survival across the income spectrum (Marmot, Feeny, Shipley, North, & Syme, 1995; Deaton, 2002). Data from the Multiple Risk Factor Intervention Trial (Davey-Smith, Neaton, Wentworth, Stamler, & Stamler, 1996) indicated that all-cause mortality rates for white men over a 15-year follow-up period fell by 1.18% to 1.22% for each $10,000 increase in income. Similar gradients have been described for children (Currie & Lin, 2007) and adolescents (Newacheck, Hung, Park, Brindis, & Erwin, 2003). These effects of poverty may be long-lasting; lower parental socioeconomic conditions at birth are associated with higher death rates during adulthood (Wadsworth & Kuh, 1997). Numerous paths explain these associations. At the international level, richer countries spend more on health-related services than do poorer nations (CMH, 2001). A 1% increase in per capita income in a nation leads to somewhat more than a 1% increase in national spending on health care. In addition, a higher proportion of health care services are paid for by public funds in richer countries than in poorer ones, so that more health care services are available to the poor (CMH, 2001). Lower socioeconomic conditions also lead to social disadvantages that can impact health status. These include psychological vulnerabilities, persistent stress, lack of social participation, and altered future time perspective, each of which is associated with lower health status (Kawachi, Kennedy, & Glass, 1999; Marmot, 2005). In addition, greater inequalities of incomes within a region may be associated with higher mortality rates (Lynch, Davey-Smith, Harper, & Hillemiller, 2004). These social factors may be more important than material differences in more affluent nations, while material vulnerability may be more important in poorer ones (Marmot, 2002), although access to material needs by the poor in wealthier nations may be limited (Frank et al., 2006). The limited access to a wide range of material and social resources forms a basis for the 'fundamental cause' theorem. This theorem posits that the poor suffer more than the rich in the face of changing disease mechanisms because they lack basic factors that protect health regardless of the specific threats that may appear (Phelan, Link, Diez-Roux, Kawachi, & Levin, 2004). These relationships do have limitations. On one hand, income explains only part, although a substantial part, of the difference in health among nations. Other factors such as technological advancement play important roles (Preston, 1975; Soares, 2007). Also, exceptions to the direct relation between economic prosperity and good health status are notable. Some poor countries, such as Cuba and China, have better health conditions than do some more affluent ones (Mechanic, 2002), and some communities have health conditions that belie their poor economic states (van Hooijdonk, Droomers, van Loon, van der Lucht, & Kunst, 2007). HOW PERSONAL HEALTH LEADS TO WEALTH The relationships described above between wealth and health may also be examined in the opposite direction, that is, improved health increases wealth. In this paradigm, health acts as an 'economic engine.' These effects occur through numerous channels including the impacts of personal health on personal, family or business finances (discussed in this section) and the impacts of population health on communal or societal resources and activities (discussed in the next section). Impact on Personal and Family Finances The quality and duration of life directly impact a person's ability to generate income. Illness or death is the main cause of new or increasing poverty in the world (World Bank, 2006), and the economic consequences of illness are among of the leading causes of personal debt in the United States (Himmelstein, Warren, Thorne, & Woolhandler, 2005). Improved health that prolongs working years promotes income growth by extending the duration of economic productivity. Better health with better quality of life may increase economic value by raising the economic output of each year of life, that is, increasing productivity (Strauss & Thomas, 1998), by increasing "vigor, strength, attentiveness, stamina, creativity and so forth" (Howitt, 2005). The magnitude of lost productivity because of illness is large. For example, mild to moderate anemia in women reduces personal productivity by 24% (Shastry & Weil, 2003). A Commonwealth Fund study (Davis, Collins, Doty, Ho, & Holmgren, 2005) reported that, in the United States in 2003, workers took 407 million sick days. Work limitations increase progressively as the number of health risk factors such as cigarette smoking and alcohol use increases; in studies reported by Burton, Chan, Conti, Schultz, Pransky, & Edington (2005), each additional risk factor was associated with a 2.4% reduction in individual productivity. Workers with chronic health problems are 2.5 times as likely to miss six or more days of work per year because of illness than are those without chronic diseases (Marmot et al., 1995). Impacts on Children Poor childhood health has both current and future economic consequences that may span generations. First, the health of the children impacts the productivity of parents. Parents commonly miss work to care for sick children. In 2001, approximately 20% of the workforce reported missing work because of an illness in the family, with an average loss of 4.5 days per person per year (Rhoades, 2004). Steinberg, Johnson, Schierhout, and Nagawa (2002) reported that more than 40% of caregivers in families of patients with AIDS reduced their income-generating or educational activities to care for the sick. Second, poor childhood health may limit a child's future economic productivity by direct health effects and through the relation between poor health and low educational attainment. Case, Fertig, and Paxson (2005) demonstrated that one additional chronic disease at age 16 was associated with a five percentage point reduction in the probability of employment at age 42. Growth in utero and early-life is associated with a range of negative adult outcomes, including high blood pressure, reduced respiratory function, schizophrenia, and other chronic diseases (Wadsworth & Kuh, 1997; Strully & Conley, 2004). Behrman and Rosenzweig (2004) estimated that raising the average birth weight of low birth weight babies to the mean birth weight of all U.S. babies would increase their lifetime earnings by 26%. These effects of childhood health may be mediated by health shocks at critical periods of development (Barker & Osmond, 1986) or by the accumulation of risk factors over the full life course (Kuh, Ben Shlomo, Lynch, Halqvist, & Power, 2005). Poor child health also impacts education as unhealthy children are not prepared for school, miss more days of school, and learn less when in school (Jamison & Leslie, 1990). Common childhood conditions such as severe iron deficiency anemia (Halterman, Kaczorowski, Aligne, Auinger, Szilagyi, 2001) and poorly controlled diabetes mellitus (McCarty, Lindgren, Mengling, Tsalikian, & Angvall, 2003) reduce cognitive function later in life. Others have shown that low birth weight children have a 79% lower probability of graduating from high school in a timely manner and are less likely to have managerial jobs than are others (Strully & Conley, 2004). In addition, poor health reduces the incentive for pursuing education by reducing the number of years over which the investment in education provides economic returns. A 1% increase in average longevity is associated with a 1% increase in length of schooling (Kalemi-Ozcan, Ryder, & Weil, 2000), and one additional year of schooling results in approximately a 15% higher starting wage and a doubling of the rate of subsequent salary increases (Sala-i-Martin, 2005). Parental well-being also influences the future health and economic development of their children (Strully & Conley, 2004). Parental illness may decrease emotional as well as fiscal support for children and may cause children to miss school or to drop out of school to enter the job market, reducing later economic productivity. In one study in the United Kingdom, for example, death of a parent before the age of 8 years was correlated with a significant reduction in cognitive ability through the age of 15 years and a lower probability of obtaining advanced educational degrees (Richards & Wadsworth, 2004). In addition, poor parental health commonly results in childhood malnutrition as family income and ability to obtain food fall (Steinberg et al., 2002). Impacts on Businesses Illness impacts businesses by increasing employee benefit costs, increasing absenteeism, reducing productivity at work (that is, increasing presenteeism), and increasing employee turnover rates. Health benefits are the most rapidly growing cost among employee benefits, with a rate of growth exceeding the rate of growth of wages by almost 3 to 1 (28% vs. 10%) since 1991 (United States General Accounting Office, 2006). Poor employee health may be expected to increase these costs by increasing direct outlays for care and by increasing risk ratings for insurance coverage. Absenteeism because of health issues accounts for the equivalent of approximately two million full-time equivalent employees per year (Davis et al., 2005). Poor health of employees has an even greater impact on costs by increasing presenteeism. National surveys have reported that one-fourth of workers have at least one workday per month in which they are either absent from work or exhibit reduced productivity at work because of a health condition (Kessler, Greenberg, Mickelson, Meneades, & Wang, 2001; Burton, Pransky, Conti, Chan, & Eddington, 2004). Recent studies have documented the very high productivity losses due to common conditions such as pain (Stewart, Ricci, Chee, Morganstern, & Lipton, 2003) and depression (Stewart, Ricci, Chee, Hahn, & Morganstern, 2003). Workers with depression have an average of 5.6 lost hours of productive work per week, with an annual cost to employers of $44 billion. Pain results in a productivity loss of over $61 billion per year. In each case, over three-fourths of the lost productive time was related to presenteeism. In addition, poor health and premature death increases employee turnover, with high replacement costs and loss of the benefits of long-term experience; a pre-employment history of a single hospitalization due to a chronic illness correlates with a 20% increase in early job turnover (Kolstad & Olsen, 1999; Haacker, 2004). The overall economic impact of absenteeism and presenteeism from common chronic diseases exceeded $1 trillion in 2003 (DeVol & Bedroussian, 2007). IMPACTS OF POPULATION HEALTH ON ECONOMIC GROWTH Poor health of the community may limit communal--in addition to personal--economic growth through many paths (Bloom & Canning, 2000; CMH, 2001). At a basic level, better population health reflects the improved health and, hence, the economic productivity of many individuals. The aggregation of these individual effects to the community level translates into better macroeconomic performance. Poor overall population health also impairs the economic well-being of the entire community or nation beyond the cumulative impacts on individuals and specific businesses. The aggregate or macroeconomic effects of improved health are large in magnitude, and they impact everyone in a community - not just those who are ill. Poor health reduces the personal savings that provide capital for investment; citizens in poor health spend more of their available funds for current health care needs and become concerned less with future needs. A ten-year increase in average population life span is associated with a 4.5 percentage point increase in national savings rates (Bloom, Canning, & Graham, 2003). Worse population health also discourages outside investment. Alsan, Bloom, and Canning (2005) estimated that each additional year of average life expectancy is associated with a 7% increase in foreign investment. Poor health suggests the absence of a capable and productive workforce. The resulting fall in foreign trade investment leads to reduced capital, technology transfer, and access to global markets. In addition, poor population health limits the likelihood of successful implementation of new technology if it becomes available (Soares, 2007; Becker, Philipson, & Soares, 2003). These losses of external resources are particularly important to unhealthy regions that are also poor and that may not have the internal financial or technological resources to initiate or sustain recovery. As discussed by, for example, Jamison, Lau, and Wang (2005), much of the correlation between health status and income across countries may reflect differences in the abilities of nations to utilize new technologies. Poor population health may also disrupt various social structures and functions (Haacker, 2004). Governmental funds are reduced as tax collections fall, and the remaining communal funds are diverted to health-related services and away from other needed infrastructure projects. Community cohesion and social capital are also lost as illness disrupts family and societal structures (Kawachi et al., 1999; David, 2007), leading to lower economic growth (Zak & Knack, 2001). In developing countries, health shocks have led to general dissatisfaction with government resulting in political instability and even to civil war (Haacker, 2004). A final powerful long-term macroeconomic effect of health on economic development is mediated through the association between poor health conditions and high birth rates (Bloom, Canning, & Sevilla, 2003a). Less healthy societies have higher birth rates than do healthier ones possibly as a means to compensate for high infant mortality rates. This, in turn, reduces parental investment per child in, for example, education and reduces per capita economic development. Lower birth rates may also allow greater participation of women in education and in the labor force. Bloom, Canning, and Jamison (2004) demonstrated that a one percentage point growth in the population under age 15 years is associated with a 0.4% reduction in per capita gross domestic product (GDP), and Barro (1991) reported highly significant negative correlations between fertility rates and GDP (r = -.74) and proxies for human capital (r = -.87). When health improves and the infant mortality rate falls, there is at first a surge in the number of children followed by a fall in the birth rate. The time gap between these two events results in a population bubble of healthier and more productive workers. As much as one-third of the rapid economic growth of east Asia during the late twentieth century can be attributed to this population bubble and the resulting 'demographic dividend' (Bloom et al., 2003a). QUANTIFYING THE ECONOMIC IMPACTS OF POPULATION HEALTH Numerous studies have estimated the economic value of improved population health. While the methods, the absolute amounts, and the proportion of economic growth attributable to health vary widely from study to study, they demonstrate that the contribution of population health to economic growth is substantial. Historic Studies Historic studies have documented the contribution of health improvements on national economies over time. Fogel (1997) estimated that improvements in nutrition accounted for 20% to 30% of Britain's income growth in the 200 years from 1790 to 1979 due to both a fall in the proportion of the population that was too malnourished to work (falling from 20% to 0%) and an increase in productivity of those who were working. Bloom and Sachs (1998) suggested that more than half of the difference in the rate of economic growth between the least developed nations in Africa and that of the high-growth countries of east Asia could be attributed to Africa's greater disease burden, demography, and geography. Nordhaus (2002) concluded that half of the economic growth of industrialized nations over the last century can be attributed to improvements in health. Becker, Philipson, and Soares (2003) estimated that the value of the increase in longevity from 1965 to 1995 to be the equivalent of 28% of the observed overall growth in per capita income in the U.S. over that period. Cross-National Studies Cross-national studies have shown that differences in health conditions among nations contribute substantially to the differences in their economic conditions. Barro (1991) estimated that a 10% difference in the life expectancy of a nation is associated with a 0.3 to 0.4 percentage point difference in economic growth per year. Based on estimates from several sources, the WHO (CMH, 2001) estimated that the 28 year difference in the life expectancy between a typical low-income and a typical high-income country is responsible for 1.6 percentage points per year in annual economic growth rates. Weil (2005) estimated that eliminating health differences among nations, as measured by adult survival rates, would reduce the variance in log GDP per worker across nations by 9.9%, and a 1% increase in survival rates of people ages 15 to 60 years would increase per capita income by 1.2%. Finally, data collated by Subramanian, Belli, and Kawachi (2003) demonstrated that countries with the weakest health conditions have less sustained economic growth; countries with highest human development statistics had economic growth rates of 2.3% per year from 1990 to 1998, whereas mid-level countries experienced growth of 1.9% and lowest level countries showed growth rates of approximately 0%. These increases in growth are large in comparison to the average rate of increase in GDP among all nations of 2.3% between 2004 and 2005 (World Bank, 2007b) and when compounded over many years. Although the relation is strongest among countries with low per capita GDP, the positive relation between health conditions and economic growth persists when only nations of the Organization for Economic Cooperation and Development (OECD) with relatively high incomes are studied (Rivera & Currais, 1999). Other cross national studies have estimated the relative potency of health and other factors that promote economic development. Bhargava, Jamison, Lau, and Murray (2001) reported that among the poorest nations, a 1% increase in survival rate was associated with a 0.05% increase in economic growth rates, whereas a 1% increase in the ratio of investment to GDP was associated with only a 0.014% increase in growth rate. A study of 53 nations from 1965 to 1990 reported by Jamison et al., (2005) indicated that health improvements were responsible for 11% of overall economic growth; improved education and expanded physical capital accounted for 14% and 67%, respectively. In multivariate regression studies by Bloom, Canning, and Sevilla (2003b) and by Knowles and Owen (1997) education was not a significant correlate of income or growth when health measures were included in the models. Further, Bloom, Canning, and Weston (2005) showed that the return on investment for childhood immunization is expected to be 18% by 2020, a value exceeding the 11-13% return for higher education (Becker, 1962). Productivity Studies Others have used labor market data to assess the impact of improved health on labor market productivity. Bloom, Canning, and Sevilla (2003b) estimated that a one-year increase in a population's average life expectancy leads to a 4% increase in overall economic output, and Battacharya and Lakdawalla (2005) estimated that health improvements from 1970 through 1999 increased the economic output of a 60 year old white male and a 40 year old African American male by 8%, with a net annual increase in total labor market value of human capital of $1.48 trillion. Willingness to Pay Studies Many economic studies have estimated the value of improving population health to national economies using 'contingent valuation' or 'willingness to pay' models. These are based on the concept that the economic value of a product can be measured by the amount a consumer is willing to pay for it or to avoid it (Hirth, Chernew, Miller, Fendick, & Weissert, 2000; Viscusi & Aldy, 2003). Thus, the economic value of improved health may be estimated by the amount that people would pay to avoid ill health. While this approach has substantial limitations and reports a wide variability in results (Hirth et al., 2000; Viscusi & Aldy, 2003), the results suggest the large economic value of improved health to society. Based on data compiled by Hirth et al. (2000), the Institute of Medicine has suggested that each additional quality-adjusted year of life in the United States has an economic value of $160,000, corresponding to a value of $4.8 million for a life of 76 years (Institute of Medicine, 2003). Using these methods, Becker et al. (2003) showed that "the total lifetime value (willingness to pay) of these gains [in life expectancy] for an individual born in 1995 correspond to more than 3 times the value of GDP per capita" and "correspond to permanent increases of more than 10% in annual income in the US...." The economic gains from health interventions are multiplied as current health advances impact current and future populations and as the present population benefits from past advances. Murphy and Topol (2005) estimated that health improvements from all sources and at all ages over the 20th century yielded additional life years to newborns that have a present discounted value of $2 million per person. Similarly, Becker et al. (2003) suggested that "the American cohort born in 1995 ... had an aggregate expected welfare gain equal to $261 billion from the mortality reductions experienced in the US between 1965 and 1995." IMPLICATIONS FOR HEALTH CARE AND ECONOMIC POLICY The two models of the relation between health and wealth discussed here differ in fundamental ways. In the classical model, better health is the byproduct of improved economic conditions, whereas in the 'health as an economic engine' construct, health is a powerful force for individual and national economic development. When viewed as an engine of economic growth, health becomes a form of capital--a component of human capital--and renders health-related expenditures a capital investment rather than only an expense for a consumable product. Moreover, the newer model concludes that health is what helps make countries rich rather than, as summarized by David Bloom and David Canning (2003), "a luxury only rich countries can afford." As described in this paper, improving health may enhance economic conditions through both microeconomic and macroeconomic channels. The microeconomic factors include the direct effects of increasing the number of working years and the productivity of each year of work, as well as indirect effects such as the impacts on children and education. Macroeconomic factors include increasing internal and external investment, improving social structures, and altering the long-term demographics of a population. These economic benefits of health as an economic engine add to and do not diminish the intrinsic value of health as an important societal goal. These two models of health and wealth may interact to produce either a 'health-poverty trap' or a 'virtuous cycle' (Bloom & Canning, 2000; Sala-i-Martin, 2005). On one hand, improving health contributes to greater economic development, and the resulting increase in wealth contributes to a further increase in health that then leads to more economic development, etc., to produce a 'virtuous cycle'. On the other hand, poor health limits economic growth which, in turn, prevents improvements in health, resulting in a 'health-poverty trap' that is difficult to escape. Health as Human Capital This role of health as a potent contributor to economic growth represents an extension of the basic concept of human capital to include health capital (Becker, 1993). Human capital may be defined, according to Adam Smith in 1776, as "all of the useful abilities of people" that lead to "real income." Health capital, as defined by the Institute of Medicine (2003) is "the present value of the stock of health an individual is expected to have over the course of his or her lifetime." Michael Grossman (1972) suggested that people are born with a certain level of health capital that declines with age and with disease; it can be increased, as with other forms of capital, with "purposive investment", that is, by adopting interventions that increase the length and quality of life. Although most traditional studies have focused on education as the primary component of human capital (Sweetland, 1966), the WHO Commission on Macroeconomics and Health (CMH, 2001) concluded that "health is the basis for job productivity, the capacity to learn in school, and the capability to grow intellectually, physically, and emotionally. In economic terms, health and education are the two cornerstones of human capital...." Health as an Investment One implication of these concepts is that improving health has a substantial economic return and is thus a productive investment. Realistic improvements in prevention and treatment for common chronic conditions could have added $905 billion to the U.S. economy in 2003 and up to $5.7 trillion (in 2003 dollars) by 2050 (DeVol & Bedroussian, 2007). Similarly, poor health-related behaviors have a substantial economic cost; Viscusi and Hersch (2007) estimated that the economic cost of cigarette smoking may be as high as $222 per pack. The economic rates of return for specific health care interventions are high. Cutler and McClellan (2001) demonstrated that the costs of new technology for treating myocardial infarction, low birth weight infants, depression, and cataracts, while high, are much smaller than the economic gains from the resulting improvement in health status. For example, new treatments for low birth weight infants developed between 1950 and 1990 add $40,000 of health care costs for each case, whereas the present value of the 12 year increase in longevity that resulted from these interventions is estimated to be $240,000--for a 5:1 return on the investment (Cutler & McClellan, 2001). Similarly, the outpatient treatment costs for 10 common health conditions are only 11% of the productivity costs of these conditions; that is, treatment results in a 9:1 return on investment, a substantial 'treatment dividend' (Goetzel, Hawkins, Ozminkowski, & Wang, 2003). Thus, many medical interventions result in highly favorable cost-benefit ratios. Indeed, the returns on investment from basic and relative inexpensive health interventions such as childhood immunizations may equal or exceed those from education (Bloom, Canning, & Weston, 2005). These benefits are greater than generally estimated by these studies if the indirect microeconomic and the community-wide macroeconomic gains are added. These gains are also multiplied as past gains impact the current generation, and current advances impact the health of future generations. The economic role of health provides a compelling rationale for public and business support for health-improving interventions in ways directly analogous to the support given for increasing other forms of capital investments. For businesses, the value of promoting health for employees extends beyond an employee benefit to a basic investment in a company's capital or infrastructure. 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