Using health spending to achieve fiscal consolidation objectives?

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1 Using health spending to achieve fiscal consolidation objectives? Dr. Tamás Evetovits Senior Health Financing Specialist WHO Regional Office for Europe

2 Outline Let s get the objectives right Dealing with the downturn - fiscal austerity How much can efficiency gains help navigate health systems through a crisis?

3 Balancing the budget An accounting exercise or a matter of choice in public policy priorities and finding the right instruments to minimize adverse effects on equity and financial protection?

4 Sustainability is meaningless if not linked to public policy objectives Fiscal sustainability should not be seen as a policy objective worth pursuing for its own sake If it was an objective, then across the board cost cutting would do the job and both equity and efficiency would suffer

5 PPP adjusted international US$ Economic sustainability: Does health spending carve out an unfair share of growing wealth? EST health spending EST non-health spending Source: WHO NHA database, 2012

6 Have we asked people? Health spending is the top priority for more spending across Europe First priority Second priority Source: Owen Smith, World Bank Health Education Pensions Assisting poor Housing Infrastructure Environment

7 Fiscal sustainability: is the health sector a threat to fiscal sustainability? Not in Estonia... Government health spending less than 12% of total in and in 2010 as well Source: WHO NHA database, 2012

8 ...and certainly not in Hungary...

9 ...and the share of health within government spending in the WHO European region is not increasing much (lower left chart) Division of Information, Evidence, Research and Innovation

10 Azerbaijan Cyprus Tajikistan Armenia Georgia Russian Albania Uzbekistan Latvia Ukraine Ireland Bulgaria Belarus Hungary Israel Kyrgyzstan Romania Kazakhstan Estonia Poland Greece Finland Lithuania Turkey TFYR Macedonia Republic of Malta Montenegro Slovenia Serbia Slovakia Portugal Italy Iceland Sweden Czech Republic Belgium Spain Luxembourg United Kingdom Austria France Bosnia and Denmark Norway Croatia Netherlands Germany Switzerland Priority to health varies across the European region and generally lower in the eastern part (2010) Source: WHO, 2011

11 Insurance function and public financing Let s not forget the primary reason why health is a big ticket item on the public budget Public financing achieves better financial protection and equity in access to care i.e. health insurance according to need and not ability to pay These objectives should drive fiscal policy as well as the cuts in spending when unavoidable

12 Outline Let s get the objectives right Dealing with the downturn - fiscal austerity How much can efficiency gains help navigate health systems through a crisis?

13 The rationale for counter-cyclic fiscal policies for health expenditure Need for health care during the crisis increases Drop in public expenditure leads to an increase in private spending which in turn reduces financial protection for the poor who may forgo seeking care Utilization of services and quality of care during a crisis decrease despite increased needs

14 Sharp increase of unmet need in Latvia

15 Latvia cut health spending more than other sectors during its fiscal consolidation...at a high price to patients Division of Information, Evidence, Research and Innovation

16 Options for counter-cyclical spending on health... Accumulate reserves and use when crisis hits Opt for deficit financing (if fiscal health allows) Reallocate within government budget or raise new sin taxes (and earmark to health)...and coping strategies within the health sector Improve efficiency of the health system Reallocate within the sector Cut benefits (as last resort) Division of Information, Evidence, Research and Innovation

17 Estonia: well prepared for a crisis, but HIF reserves were used to balance government budget Source of slide: T. Habicht, EHIF,

18 mln. Lt 3,500 Counter-cyclical public spending at work in Lithuania Source: G. Kacevicius 3,000 2,500 2,000 1,500 1, planas 2013 m. projektas Total amount of contributions of economically active population, million LTL Total amount of contributions and aditional allocations of national budget, million LTL 18

19 Belarus Monaco Bosnia and Herzegovina Kazakhstan Georgia Malta Iceland Albania Tajikistan United Kingdom Bulgaria Azerbaijan Romania Czech Republic Estonia Italy Republic of Moldova Sweden Uzbekistan Israel Switzerland Belgium Cyprus Russian Federation Luxembourg Hungary Ukraine Serbia France Andorra Turkmenistan San Marino Turkey Croatia Montenegro Germany Netherlands Lithuania Austria Greece Denmark Spain Finland Poland Norway Kyrgyzstan Slovenia Slovakia The Republic of Macedonia Latvia Portugal Armenia Ireland 6 Priority to health has changed during the financial / economic crisis: in many countries health contributed to fiscal consolidations 5 4 GGHE as % of General government expenditure (GGE) 3 Change Source: Jon Cylus et al., 2013

20 30.0% Reallocation within government budgets Redistribution within government budget: Differences in the percentage of the government budget spent on various sectors from 2007 to 2010, selected countries 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Source: Jon Cylus et al., 2013 Economic affairs Health Education Social protection Other

21 Countries with a reduction in per capita public spending on health (national currency units), Andorra Andorra Albania Andorra France Bulgaria Armenia Armenia Luxembourg Croatia Croatia Czech Republic Malta Estonia Czech Republic Germany Hungary Estonia Greece Ireland Finland Ireland Latvia Greece Netherlands Lithuania Iceland Portugal Romania Ireland Slovakia San Marino Lithuania Spain FYR Macedonia Montenegro United Kingdom Slovenia Spain Source: WHO, 2013 (forthcoming) Countries shown in bold experienced reduced spending in more than one year

22 Are we moving away from universal health coverage or can we manage with efficiency gains?

23 Policy responses in Europe Good news: Very few countries made changes to the statutory benefit packages and the breadth of population coverage; in some cases benefits were expanded for low-income groups. Bad news: Many countries lowered the depth of coverage by instituting or increasing PATIENT USER CHARGES for certain services, increasing the financial burden on households.

24 Improving efficiency is a far better option than cutting back on services or imposing fees that punish the poor Dr. Margaret Chan, Director-General World Health Organization

25 Policy responses in Europe: expenditure Lower spending on PHARMACEUTICALS by negotiating lower prices and switching to generic medicines Health personnel SALARIES were reduced, frozen, or the rate of increase reduced. Cuts in spending on HOSPITALS by reducing tariffs and volume In some cases these were across-the-board cuts, in other cases targeted

26 Improving efficiency reduces adverse effects of the crisis and helps secure popular and political support for more spending in the future Eliminate ineffective and inappropriate services Improve rational drug use (including volume control) Allocate more to primary and outpatient specialist care at the expense of hospitals Invest in infrastructure that is less costly to run Cut the volume of least cost-effective services

27 Crisis presents opportunities not to be missed and potential failures to avoid

28 There is a limit to how far (and how fast) efficiency gains can take us? Aim for sustainable efficiency gains Avoid losing human resources Protect what works well because re-building capacity may be more costly in the long run Careful with shifting from public to private out-of-pocket expenditure Spending cuts efficiency

29 In closing: an invitation to Oslo, Norway Stronger health systems: prepared and resilient