WHAT IS THE ‘FISCAL SUSTAINABILITY’ OF HEALTH?
3rd Annual Meeting of the Joint Network on Fiscal Sustainability of Health Systems 24 April 2014 Ankit Kumar OECD Secretariat
1. Health spending is likely to continue to grow as a share of the economy
2. This will demand a public budget response: – Accommodating for greater health spending as a share of
government budgets may not be a bad thing
– Considerable scope to increase productivity in health
3. In the long term, we may need to de-link the correlation between health as a share of budgets and health as a share of the economy
2
Key points
• The general and not the specific case
• Bias towards high income OECD countries
• Economic sustainability not accounting balance
3
Caveats and clarifications
HEALTH AND THE ECONOMY
4
Health spending outpaced economic growth in the pre-crisis period
Source: OECD Health Statistics 2013 5
Annual growth rate of health spending per capita and real GDP per capita, 2000-2009
AUS
AUT
BEL CAN
CHI
CZE
DEN
EST
FIN
FRA DEU
GRC
HUN
ISL
IRL
ISR ITA
JPN
KOR
LUX
MEX
NLD
NZL
NOR
POL
PRT
SVK
SVN ESP
SWE
CHE
GBR
USA
0%
2%
4%
6%
8%
10%
12%
-1% 0% 1% 2% 3% 4% 5% 6%
Ave
rage
an
nu
al g
row
th r
ate
in r
eal h
ealt
h
exp
end
itu
re p
er c
apit
a
Average annual growth rate in real GDP per capita
6
The crisis has moderated rapid growth in health spending
5.3
7.0
1.6
7.2
1.8
5.3
3.3 3.
8
5.9
4.1
1.6
3.0 4.
1
2.2 2.
8 3.7
3.1
2.1
3.5 4.
5 5.5
7.1
3.4
1.9
3.9
3.4
2.1 3.
1
10.9
1.3
2.8
7.5
9.3
-11.
1
-6.6
-3.8
-3.0
-2.2
-1.8
-1.8
-1.2
-0.8
-0.5
-0.4
0.0 0.2
0.2 0.5
0.6 0.7
0.7
0.8
0.8 1.0 1.2
1.3
1.4 1.6 1.8 2.1 2.
6 2.8 3.
4
4.9 5.
5 6.3
-15
-10
-5
0
5
10
15
Gre
ece
Irela
nd
Icel
and
Est
onia
Por
tuga
l
Uni
ted
Kin
gdom
Den
mar
k
Slo
veni
a
Cze
ch R
epub
lic
Spa
in
Italy
Aus
tralia
OEC
D32
Aus
tria
Nor
way
Bel
gium
Mex
ico
Fran
ce
Can
ada
New
Zea
land
Net
herla
nds
Pol
and
Uni
ted
Sta
tes
Sw
itzer
land
Finl
and
Sw
eden
Ger
man
y
Hun
gary
Slo
vak
Rep
ublic
Isra
el
Japa
n
Chi
le ¹
Kor
ea
2000-2009 2009-2011
1. CPI used as deflator. Source: OECD Health Statistics 2013
Annu
al a
vera
ge g
row
th ra
te (%
)
Annual average growth rate in per capita health expenditure, real terms, 2000 to 2011 (or nearest year)
7
But even still, health has been a major contributor to growth over the last decade
Contribution of health to growth in GDP per capita (%), 2000 to 2011
Health and social care is a fast growing source of employment in many countries
Source: OECD Database on Labour Force Statistics, countries selected reflect the availability of data 8
Change in employment between 2000 and 2011, various industries
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Ireland Spain Australia Canada UnitedKingdom
Austria France Finland CzechRepublic
All activities Agriculture Industry Services Human health and social work activities
There are complex relationships between health, lifestyle and labour force participation
Employment Wages Absenteeism
Obesity
Lower probability of
employment
Larger wage penalties
(Lundborg et al. 2010, Sweden)
More sickness absences,
especially for women
Alcohol Use
Long-term light
drinkers have better employment opportunities
(Jarl et al 2012, Sweden)
Moderate drinking positively associated with
wages
(Hamilton and Hamilton 1997, Canada)
Absences 20% higher
among abstainers, former and heavy
drinkers
(Vahtera et al 2002, Finland)
Smoking
Heavy smokers more
likely to be unemployed (Jusot et al. 2008, France)
Less evidence
Smokers earn 4-8% less than non-smokers
(Levine et al. 1997, USA)
Smokers 33% more likely
to be absent from work than non-smokers
(Weng et al. 2012, meta-analysis)
9
Increased health spending will be a major pressure on public budgets across all OECD countries
Source: OECD Economic Policy Paper n°06, 2013 10
0%
2%
4%
6%
8%
10%
12%
Average public spending 2006-2010 Increase of public spending 2010-2030 Increase of public spending 2030-2060
% GDP
Drivers of healthcare expenditure growth between 1995 and 2009 in OECD countries
Ageing is not the key driver of health spending growth
Healthcare expenditure growth (100%)
Demography (12%)
Age structure
Health by age
Income (42%)
Residual (46%)
Relative prices
Technology
Institutions and policies
Source: OECD Economic Policy Paper n°06, 2013
11
• Implications: – Intergenerational transfer – As ageing is not the driver, so we cannot ‘ride out’
health spending by letting budgets run into deficit – The policy challenges are relative budget priority, the
boundaries of financing, and productivity
What do we mean by fiscal sustainability?
12
IMF: The capacity of a government, at least in the future, to finance its desired expenditure programs, to service any debt obligations […] and to ensure its solvency.
EU: This considers the ability of the government to meet the costs of its current and future debt through future revenues (Indicator S1). The finite version of the budget constraint is assessed with reference to a target date of 2030 and a target level of debt of 60 % of GDP (Indicator S2)
13
Debt serviceability and health
Fiscal consolidation requirements and projected change in health and pensions, 2014-2030
14
IMF: Assessing fiscal vulnerability
Source: IMF Fiscal Monitor, April 2014
HEALTH IN GOVERNMENT BUDGETS
15
It is unlikely that countries will want to step back from covering 100% of their population
100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0 99.9 99.9
88.9 99.9
99.0 99.5
98.8 97.2
79.8 96.6
95.2 92.9
86.7 31.8
0.2
11.0
0.9
17.0
53.1
0 20 40 60 80 100
AustraliaCanada
Czech Rep.Denmark
FinlandGreece
HungaryIcelandIreland
IsraelItaly
JapanKorea
New ZealandNorway
PortugalSloveniaSweden
SwitzerlandUnited Kingdom
AustriaFrance
GermanyNetherlands
SpainTurkey
BelgiumLuxembourg
ChilePoland
Slovak Rep.EstoniaMexico
United States
Total public coverage Primary private health coverage
Percentage of total population 16
Source: OECD Health Statistics, 2013
17
Countries have allowed health to become a bigger share of their budget
Source: OECD National Accounts Statistics (Database).
Change in the structure of general government expenditures on average in OECD countries, 1995 to 2012
4.4%
3.3%
0.4% 0.3% 0.2% 0.1%
-0.7% -0.9%
-3.7% -4.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
SocialProtection
Health Education Environmentand Protection
Public orderand safety
Recreation,culture and
religion
Defence Housing andcommunity
services
General Publicservices
EconomicAffairs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Aus
tral
ia
New
Zea
land
Nor
way
Uni
ted
Kin
gdom
Swed
en
Chi
le
Hun
gary
Fran
ce
Aus
tria
Slov
enia
Kor
ea
Pola
nd
Ger
man
y
Net
herl
ands
Est
onia
Cze
ch r
epub
lic
Slov
ak r
epub
lic
Other
“Sin” taxes
Taxes on profits (.e.gcompany taxes)
Taxes on goods andservices
Mandatory healthinsurance premiums
Payroll contributions/taxes
General and income taxes
Source: SBO survey and OECD Secretariat estimates
Our models do not account for shortfalls in revenues for countries that rely heavily on payroll taxes
• ‘Sin taxes’ are increasingly being used by OECD countries
– These taxes target lifestyle choices that can affect productivity and employment outcomes.
– The arguments for using taxes to attain public health
objectives are strong for tobacco products and alcohol. – The poor are likely to pay more but have greater health
benefits.
Some new taxes could be effective in improving health, but will not be major sources of revenue
19
20
Source: Paris et al., Measuring coverage (Forthcoming) from Busse, Schreyögg et Gericke, 2007
• Need to de-link increases in health spending as a share of the economy from health as a share of public budgets
• Clearly defining what is publicly funded is preferable to broad based co-payments
• Private health insurance not
necessarily cost reducing
Boundaries between public and private need to be debated
• Be more specific and selective in defining the range of services covered
• Health systems have become better at assessing new activities, but this misses most spending: – Cost effectiveness analysis studies are used to assess
whether a new service or drug should be funded – A more systematic assessment of therapeutic strategies by
disease should be conducted
• Most countries already have institutions in charge of the incremental approach
21
A better way to cost share
REDUCING INEFFICIENCY, IMPROVING PRODUCTIVITY
AND SHIFTING FOCUS
22
23
Improving health sector productivity can dramatically change the fiscal outlook
Sensitivity of public sector net debt projections to interest rates
Sensitivity of public sector net debt projections to health productivity
Source: Fiscal Sustainability Report, UK Office for Budget Responsibility, July 2013
The target areas for expenditure control are well known among Finance Ministries
24
0 5 10 15 20
Outpatient care spending
Primary health care services
Spending on prevention programs
Long term care spending
Pharmaceutical costs
Hospital expenditure
Source: OECD Survey on Budget Practices and Procedures, 2013
Number of countries
Self-reported priorities for expenditure control, 22 OECD countries
25
The crisis has been used to slow growth in desirable areas, but we have fallen short on prevention
4.8% 4.8%
5.9%
2.9%
6.9%
2.5%
3.2%
4.6%
6.2%
2.8%
6.4%
3.5%
0.7% 0.9%
5.3%
0.2%
-1.5% -0.9%
1.0% 1.7% 1.6%
-1.7% -1.7%
1.7%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Inpatient care Outpatient care Long-term care Pharmaceuticals Prevention Administration
2007/08 2008/09 2009/10 2010/11
Source: OECD Health Statistics 2013
Average annual growth rates of spending for selected functions, OECD average, in real terms
Worthwhile processes are not being undertaken with consistency Distribution of French GPs: % of diabetic patients having 3 or more HBA1C
tests during the year in the last 12 months (2009)
Average=40% Target=65%
10 20 30 40 50 60 70 80 90
Considerable medical practice variations within and between countries
27
Note: Rates are standardised using OECD’s population structure. Missing country data will be added once available. Source: National reports submitted for the OECD project on Medical Practice Variations.
Rates of PTCA (standardised for age and sex) per 100,000 population, 2011 (or earliest
available)
Rates of Coronary Artery Bypass Grafting (standardised for age and sex) per 100,000
population, 2011 (or earliest available)
• Today: Where health care spending challenges a government’s ability to finance desired expenditure and service debt obligations.
• Long term: Holding other forms of spending constant, long term debt financing of health is undesirable – Assumptions about growth, interest rates,
potential tax increases come into play • Policies: Crowd out other areas, increase taxes,
improve productivity of health spending. 28
Fiscal sustainability of…health?
WHAT IS THE ‘FISCAL SUSTAINABILITY’ OF HEALTH?
3rd Annual Meeting of the Joint Network on Fiscal Sustainability of Health Systems 24 April 2014 Ankit Kumar OECD Secretariat