Is Prevention Better than Cure? Health Expenditure and Convergence in OECD Countries

While it has been established that economic convergence has occurred within developed economies within the OECD, their health outcomes are lagging behind and do not converge. This senior thesis project investigates whether the root cause of this health divergence is how countries choose to spend their healthcare budgets, specifically the ratio between spending on preventing illness versus treating it. This project tests whether lagging countries fall into a late-spend trap, where countries are overly using funds to treat people who are already sick (curative care) while underinvesting in keeping people healthy in the first place (preventive care). This reactive approach can result in lack of health convergence as different countries fail to proactively reduce disease and fail to close the health gap with those leading in health outcomes. To test this, data across OECD countries on healthcare expenditure on curative and preventive care will be analyzed. Model 1 examines the role of the ratio between preventive and curative care of a country's spending on convergence of health outcomes. This model tests whether the composition of the budget accelerates catch-up. Model 2 introduces a quadratic design to evaluate for a non-linear "sweet spot" for preventive spending as a percentage of total GDP. By testing for resource crowd-out effects and comparing results established in the literature, such as a 0.44% of GDP target by Wang, 2018, this research aims to provide explanations for health divergence between countries and offer insights on optimal healthcare resource allocation.