Healthcare financing and healthy longevity in OECD countries

Abstract

Abstract This study examines the relationship between health expenditure and healthy life expectancy (HALE) across OECD countries over the period 2000–2021, a timeframe that includes major structural reforms, global economic shocks, and the COVID-19 pandemic. Unlike conventional life expectancy, HALE captures both the duration and quality of life, providing a more comprehensive measure of health system performance. Using a balanced panel dataset of 35 OECD countries (770 observations), the study employs panel data techniques, including pooled OLS and a two-way fixed effects model with Driscoll–Kraay standard errors as the main specification. Additional robustness analyses using country-clustered standard errors and a dynamic System GMM estimator are conducted to account for alternative inference procedures, persistence in HALE, and potential endogeneity concerns. The pooled results indicate a positive and statistically significant relationship between health expenditure and healthy life expectancy. However, this relationship becomes statistically insignificant once country and year fixed effects are introduced, suggesting that cross-country heterogeneity rather than within-country dynamics drives the observed association. The dynamic panel results further indicate that healthcare expenditure does not exhibit a simple positive association with HALE after accounting for persistence and potential endogeneity. The findings imply that increasing health expenditure alone may not be sufficient to improve healthy longevity. Instead, the effectiveness of health spending depends on allocation efficiency, financing structure, governance quality, and demographic pressure. From a policy perspective, improving healthy life expectancy requires more concrete reforms, including strengthening screening programs and primary healthcare coordination, expanding the use of health technology assessment (HTA) in resource allocation decisions, and reducing financial barriers that limit access to preventive care. Overall, the study contributes to the economics of longevity literature by showing that the relationship between health expenditure and health outcomes is conditional on demographic dynamics and broader institutional and behavioural conditions.