HEALTHFLATION: HEALTHCARE SECTORS HOSTAGE TO MACROECONOMIC INSTABILITY AND COST OF LIVING CRISIS

Abstract

The hypothesis of the article is to recognize the fact that the impact of inflation on health deserves academic attention. Based on the statement that inflation negatively affects health, and the more negative this impact is, the more vulnerable certain groups of people are in terms of socio-economic status, we set ourselves the goal of defining the category of “healthflation”, which will allow us to actualize an important component of price instability. We have established that the term “healthflation” is an explanation of price fluctuations that occurred: (1) as a result of restrictions on the international movement of goods and services, international movement of labor as a result of the implementation of border closure and self-isolation policies; (2) in the field of medical care, in the medical services market, in the medical equipment market and in the pharmaceutical market (including the vaccine market); (3) due to the cost of medical services, the need for which arose as a result of the deterioration of health, which is associated with the cost of living crisis, which resulted in a reduction in economic activity and economic growth rates under the influence of the pandemic. It is noted that health inflation, which manifests itself in a reduction in the purchasing power of economic agents, can occur: as a reaction to pandemics (where, as a result of the introduction of restrictions on the movement of factors of production, the supply of goods decreases, which provokes an increase in prices); as a reaction to a decrease in labor productivity due to a decrease in economic activity and a deterioration in health as a component of human capital; as a reaction to an attempt to implement large-scale projects aimed at improving the health of the population and/or projects to increase national security in the field of providing drugs of strategic importance, the center of production of which may be a country from the “unfriendly” list, which will allow it to use drugs as a weapon; as a reaction to a change in the structure of population expenditures due to a deterioration in health (reduction in consumption of certain types of services, increase in consumption of goods) and the use of preventive measures; as a reaction to the redistribution of budget expenditures due to a decrease in revenues (taxes, attracted investments), which forcibly reduces the volume of medical care provided, increasing household spending on private medical services. According to the author's approach, health inflation or healthcare inflation can also be defined as the difference between the growth of healthcare spending per capita and the growth in life expectancy. It was found that the average annual health inflation was 4.3% per year in 2000-2022 and peaked at 9.2% in 2020 at the beginning of the COVID-19 pandemic. Health inflation was lowest in low-income countries and relatively higher in fast-growing and upper-middle-income countries, showing a nonlinear relationship with the level of development, which can be explained by the fact that in difficult times people focus on essential health services that are crucial for their security. On the other hand, in conditions of rapid economic growth, people can afford to buy more services that are less urgent but provide a better quality of life and are willing to pay more for them, which can affect the prices of health services. The dependence on economic growth has persisted during the pandemic, but another factor has also become significant – inflation, which is negatively correlated with health inflation.