DataWatch. International Health Care Expenditure Trends: 1987 by GeorgeJ.Schieber and Jean-Pierre Poullier

Transcription

1 DataWatch International Health Care Expenditure Trends: 1987 by GeorgeJ.Schieber and JeanPierre Poullier Health spending in the continues to increase faster than in other major industrialized countries. Between 1986 and 1987, U.S. per capita health expenditures increased by 8.7 percent, compared to a purchasing power parity (PPP) adjusted average rate of increase of 5.6 percent in,,,,, and the United Kingdom. In 1987, U.S. per capita spending on health was $2,051, double the $1,033 average for the other six countries. While the share of gross domestic product (GDP) devoted to health increased on average by 0.05 to 7.5 percent in the other six countries, the U.S. share increased by 0.3 to 11.2 percent. In other words, U.S. health spending, the largest in the world in both absolute and relative terms, continues to increase more rapidly than spending in other countries, and the gap continues to widen. This DataWatch updates trends in health spending, prices, and utilization in the twentyfour Organization for Economic Cooperation and Development (OECD) countries. First, we discuss the shares of health expenditures in GDP. Second, we describe the public shares of total health expenditures. Third, we present 1987 per capita health expenditures and analyze the relationship between health expenditures and GDP. Last, we compare U.S. trends in nominal and real expenditure growth and excess health care inflation to trends in other countries. The Share Of Health In GDP Exhibit 1 contains healthtogdp ratios for the twentyfour OECD countries for Because of individual countries' revisions in their health expenditure series, the historical figures for Finland, Greece, Iceland, Luxembourg, and Norway have been substantially revised. The 1985 and 1986 figures for the have been modified slightly George Schieber is director of the Office of Research, Health Care Financing Administration, U.S. Department of Health and Human Services. JeanPierre Poullier is principal administrator, Directorate for Social Affairs, Manpower, and Education, for the Organization for Economic Cooperation and Development in Paris,. Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

2 170 HEALTH AFFAIRS Fall 1989 Exhibit 1 Total Health Expenditure As A Percentage Of Gross Domestic Product Australia Austria Belgium Denmark Finland Greece Iceland Ireland Luxembourg Netherlands New Zealand Norway Portugal Spain Sweden Switzerland Turkey % % % % % % Source: Organization for Economic Cooperation and Development, Health Data Bank. a excluding Turkey % (7.4) a % (7.5) a to reflect revisions in U.S. national health expenditure statistics. In 1987, health expenditures relative to GDP ranged from 3.5 percent in Turkey to 11.2 percent in the, with an OECD average of percent. The U.S. share continued its ascent, increasing by 0.3 percentage points from 1986, compared to no increase on average for the other OECD countries. The other major industrialized countries, with the exception of, continued to exhibit relative stability in their healthtogdp ratios: and both declined by 0.1 percentage point to 8.6 percent, West increased by 0.1 to 8.2 percent, increased by 0.3 to 6.9 percent, increased by 0.1 to percent, and the was constant at percent. 1 Public Health Expenditure Exhibit 2 contains public health expenditure as a percentage of total Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

3 DATAWATCH 171 Exhibit 2 Public Health Expenditure As A Percentage Of Total Health Expenditure Australia Austria Belgium Denmark Finland Greece Iceland Ireland Luxembourg Netherlands New Zealand % % % % % % % % Norway Portugal Spain Sweden Switzerland Turkey (77.5) a (77.4) a Source: OECD, Health Data Bank. a excluding Turkey. health expenditure. The public share in 1987 ranged from 41 percent in the and Turkey to over 90 percent in Luxembourg, Norway, and Sweden, with an OECD average of 77 percent. Per Capita Expenditure Exhibit 3 contains 1987 per capita health spending denominated in U.S. dollars using GDP purchasing power parities and the percentage by which U.S. spending exceeds spending in other countries. 2 Per capita expenditures ranged from $148 in Turkey to $2,051 in the, with an OECD average of $934 and an average of $1,178 for the seven major industrialized countries. Since U.S. spending far exceeds spending in all other countries, the critical questions for U.S. policymakers are, What accounts for these differences, and what is the getting for these higher levels of spending? Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

4 172 HEALTH AFFAIRS Fall 1989 Exhibit 3 Per Capita Health Spending, 1987 Source: OECD, Health Data Bank. One factor that accounts for differences in health spending across countries is differences in financial wellbeing. Wealthier countries tend to spend relatively more than poorer ones. Exhibit 4 shows the relationship between per capita health spending and per capita GDP for the twentyfour OECD countries for 1987 and the trend line. The wellknown direct relationship between per capita health spending and per capita GDP is once again observed. Each 10 percent difference in per capita GDP is associated with a 14 percent difference in per capita health spending. 3 The, however, lies well above the trend line, indicating that U.S. per capita spending is more than $400 higher than it would be based on the average relationship found for the OECD countries. Unfortunately, it is not possible to attribute differences in health spending to differences in outcomes, amenities, or efficiency, although several researchers have begun the detailed micro studies needed for this purpose. Despite present inability to evaluate health systems' performance in outcomes and efficiency, there is still great interest in understanding whether comparative expenditure growth across countries reflects growth in real benefits or simply excess health care inflation. Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

5 DATAWATCH 173 Exhibit 4 Health And Wealth In OECD Countries, 1987 Source: Exhibit 3 and National Accounts, Main Aggregates, vol. 1 (Paris: OECD, 1989). Note: PPP = purchasing power parity. PCH=per capita health spending. PCGDP = per capita gross domestic product. PCH = X PCGDP Both the constant term and the regression coefficient are statistically significant at the.01 level. R 2 =.86 (adjusted correlation coefficient squared). Nominal Expenditure Changes Exhibit 5 displays increases in nominal and real (nominal expenditures deflated by a health care price index) per capita health expenditures and excess health care inflation (the rate of growth in health prices relative to overall inflation as measured by the GDP deflator) for the seven major OECD countries for the entire period, as well as the , , and subperiods. As discussed below, irrespective of how well statisticians measure health care prices, real expenditure growth per capita is at best an indirect measure of actual volume and intensity changes. Nevertheless, such data provide a useful approximation of real expenditure growth and information on the extent to which overall increases in nominal health care spending are driven by excess health care inflation. Health care inflation in excess of overall inflation may be attributable to the structural incentives inherent in the health care financing and delivery system. Between 1960 and 1987, nominal per capita expenditures in the seven countries increased at a compound annual rate of 12.4 percent. Nominal expenditures increased most rapidly between 1970 and 1980, perhaps Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

6 174 HEALTH AFFAIRS Fall 1989 Exhibit 5 Nominal Health Spending, Real Health Consumption, And Relative Price Trends Nominal per capita health spending (compound annual growth rate) Real expenditures per capita (compound annual growth rate) Excess medical specific inflation (compound annual growth rate) Source: OECD, Health Data Bank reflecting the full implementation of public systems and the general inflation following the oil shocks. Nominal growth was the slowest in , as many countries faced severe economic pressure from the oil shocks, as most public systems had reached saturation, and as countries began to impose more stringent cost containment mechanisms. These trends are found in all countries except, which had its highest nominal growth in the period. Nominal annual growth in expenditures for the entire twentysevenyear period was the highest in, followed by and. Given the current U.S. interest in, it is instructive to note that both Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

7 DATAWATCH 175 countries experienced the same general trends. During , nominal per capita expenditures grew at an annual rate of 10.7 percent in, compared to 10.2 for the. The period of fastest growth was , following expansion of the Canadian Medicare program and maturation of the American Medicaid and Medicare programs (including expansion of coverage to the disabled). Over this period, nominal per capita expenditures grew at an annual rate of 12.5 percent in, compared to 11.5 in the. Nominal growth was the slowest from 1980 to 1987,9.9 percent per year in versus 9.4 percent in the. Real Expenditure Changes Over the time period, real expenditures per person in the seven countries increased at an average annual rate of 5.0 percent (Exhibit 5). Real expenditures increased most rapidly between , as most countries expanded their systems of publicly financed care. The United Kingdom introduced universal coverage in the late 1940s, but expansions in the service delivery system and higher takeup rates explain growth into the 1970s. Growth in real expenditures was slowest between 1980 and 1987, possibly reflecting saturation in coverage and benefits as well as the budgetary pressures resulting from the oil shocks and slow economic growth. These trends are found in every country except. 4 Annual real growth in expenditures per capita over was the lowest in (3.5 percent), followed by the and the (both percent). Growth was the highest in, possibly reflecting 's very low base level of expenditures. Real U.S. expenditure growth slightly exceeded Canadian growth in every period except While these data provide an indication of the changes in real expenditure growth across these countries, they provide no indication of either the adequacy of the base or how much of this growth is appropriate from a medical perspective and/or reflects perverse volume incentives inherent in the structural features of countries' financing and delivery systems. Although it is virtually impossible to analyze these effects, the impact of excess health care inflation on overall health care costs can more readily be measured and, at least on a priori conceptual grounds, be discussed in the context of systems' underlying features. Excess Health Care Inflation Before we discuss the excess health inflation information in Exhibit 5, a brief methodological discussion concerning health care price indices is Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

8 176 HEALTH AFFAIRS Fall 1989 needed. First, there is a general concern that health services price deflators understate real productivity growth. Second, the health care price indices used here are based on individual countries' reported statistics and hence are not strictly comparable since they rely on different criteria and definitions. Third, given the difficulty in developing appropriate price indices even in the more datarich countries, comparative analyses based on these indices must be regarded as crude approximations. Fourth, the results obtained are extremely sensitive to the base and end years chosen. Other potential problems also exist. For example, U.S. analysts typically deflate health expenditures by the medical care component of the consumer price index (CPI). Such indices, however, may be far less relevant for other countries in which the bulk of care is provided through the public system. In most such countries, CPIs generally underweight services, such as hospital services, which are provided by the public sector. Similarly, measures of public prices tend to overweight these components. The indices employed here typically are based on a weighted average of public and private health expenditures at constant and current prices. 5 Over , on average, health care prices increased 0.5 percent per year more rapidly than overall inflation. Excess health care inflation was the most severe from 1980 to 1987,1.3 percent per year, compared to 0.3 percent from 1960 to 1970, and 0.4 percent from 1970 to However, these trends have not been consistent across countries. Moreover, negative excess health care inflation over sustained periods of time is difficult to believe. It may simply be an artifact of the underlying price indices, reflect policies specifically targeted at the health sector such as wage and price controls, and/or result from strict government policies to control public spending due to adverse economic conditions. Hence, one must be cautious in interpreting these results. From an individual country perspective, excess health care inflation appears to be the most serious in and the, the two countries that rely the most extensively on feeforservice reimbursement of physicians. Excess health care inflation in the and is virtually identical. The and appear to have experienced the least excess health care inflation. While low excess health care inflation would be expected in the tightly controlled British National Health Service, the results for, a social insurance system with substantial feeforservice payments to physicians and, until recently, costbased reimbursement for hospitals, is more difficult to explain. However, hospitals in have faced tight budget controls, and physician incomes relative to average earnings have declined. Neverthe Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.

9 DATAWATCH 177 less, these data suggest that despite relative stability in the share of GDP devoted to health in most OECD countries, excess health care inflation is again a problem in some countries. The American health care system is the most expensive in the world and performs relatively poorly in terms of access and gross outcome measures. However, as long as GDP continues to grow, spending relatively more on health care out of a growing pie is not necessarily a problem. Indeed, there is nothing magical about 11 percent, or even 20 percent, of GDP. The fundamental question, however, is the opportunity cost of such continued growth. Are more worthy public and private projects being crowded out? How wasteful is the system? Why do other countries appear to be more successful in providing universal access at lower costs? Are outcomes for specific interventions better in the United States, and is this a major determinant of higher costs? Answers to these questions are needed to inform the intense debates on health care reform. The December 1989 Annual Supplement of the Health Care Financing Review will focus exclusively on international comparisons of health care financing and delivery systems and will contain a data compendium as well as a series of analytical studies. The views expressed in this DataWatch are those of the authors and do not necessarily represent those of their respective organizations. NOTES 1. Small changes may be disregarded as they reflect rounding and/or modest revisions in the GDP series. All data for 1987 are provisional. Final estimates are typically only published in the third year following the period shown. Part of the Italian rise in 1987 probably reflects an accounting nuance. 2. Revisions in the U.S. health accounts for 1986 lowered the preliminary differentials exhibited in Health Affairs, Fall The 1987 differentials in this DataWatch thus constitute a widening gap between the and its economic partners. 3. If a logarithmic as opposed to linear relationship is estimated, the elasticity of health expenditures to GDP is 1.4 as opposed to This may reflect a systematic underreporting of German health expenditures prior to See Health Care Financing Review, 1989 Annual Supplement (forthcoming, December 1989), for a more detailed explanation. The medical care component of the CPI may not be an appropriate index for deflating U.S. health expenditures, since the charge data used to construct certain components (for example, hospital room and board charges) do not reflect the rates paid by Medicare and some other public and private payers. The U.S. medical care price index is derived from the medical care consumption component of the U.S. National Income and Product Accounts developed by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce and published each July in the Survey of Current Business. The price deflator employed by BEA uses both HCFA input cost indices and various medical care components of the CPI. Copyright Project HOPE The PeopletoPeople Health Foundation, Inc.