How Much Does It Cost the South Korean Public Healthcare System to Produce One Healthy Life Year?

ABSTRACT

Investigating the impact of healthcare expenditure on health is crucial for optimizing public resource allocation. This can inform the value of expanding healthcare budgets and provide a benchmark for allocations within healthcare systems. However, empirical evidence remains mixed. The potential causes of mixed results—reverse causality and unobservable confounders—need to be addressed through robust empirical methods. This study assesses the South Korean public healthcare cost of producing one quality‐adjusted life year (QALY) by using conversion factors—elements in the pricing formula of healthcare services determined by negotiations—as the instrument, with two‐way fixed effects. Moreover, since morbidity significantly affects health, it is crucial to estimate the impact of healthcare expenditure on morbidity using credible data. We use a unique dataset of directly measured regional EQ‐5D indices from 240 municipalities for the period 2008–2019, which is unavailable in other countries. We estimate that $12,847 of public healthcare expenditure is required to gain one QALY. Sensitivity analyses using alternative calculation methods, data, and models produce estimates ranging from $8850 to $17,674 per QALY. Our findings suggest that the healthcare cost of producing one QALY is substantially lower than the GDP per capita and the willingness‐to‐pay for health in South Korea.