THE ECONOMIC STRAIN OF CLIMATE CHANGE: ACCOUNTING FOR EXTREME HEAT AND HEALTHCARE SPENDING

Abstract

This study investigated the financial burden of climate change on public health systems, with a specific focus on how extreme heat days and diurnal temperature range affect current health expenditure as a percentage of GDP across countries from 2000 to 2023. The main objective was to examine the impact of climate-induced heat variations on government health spending, while the specific objectives included analyzing the effect of extreme heat days (EXHD), diurnal temperature range (DTR), and population (POP) on health expenditure. An ex post facto research design was adopted, utilizing panel data sourced from the World Bank. Variables were analyzed using descriptive statistics, correlation analysis, and multiple regression models. The dependent variable was current health expenditure, proxied by Current Health Expenditure (% of GDP), while the key independent variables were EXHD (computed as the number of extreme heat days normalized and expressed as a percentage) and DTR (measured as a dummy variable indicating daily temperature variability). Population (POP) served as a control variable. Findings from the regression analysis revealed a statistically significant and positive relationship between extreme heat days and health expenditure (β = 0.3616, p < 0.001), indicating that rising heat-related incidents are associated with increased government spending on health services. Conversely, diurnal temperature range had an insignificant effect (p > 0.05), suggesting that short-term temperature fluctuations may not significantly influence public health budgets. Correlation analysis further supported the positive association between EXHD and health expenditure (r = 0.6962). The study concludes that climate-induced extreme heat exerts a considerable financial burden on national health systems, compelling governments to invest more in adaptive health responses. However, many countries still underinvest in climate-resilient health infrastructure. Key recommendations include the integration of climate risk into national health planning, establishment of heatwave early warning systems, and enhanced international support for low- and middle-income countries to strengthen their adaptive capacity. Future research should explore the long-term economic costs of climate-related health events and support real-time data collection to inform evidence-based policies.