THE FUTURE OF HEALTH SPENDING

Transcription

1 THE FUTURE OF HEALTH SPENDING Joint OECD and ESRI workshop on Long-term prospect of the world economies up to 2060 and its policy implications OECD, Paris 31 Jan 2014 Joaquim OLIVEIRA MARTINS OECD, Public Governance Directorate 1

2 SOME FACTS

3 Health spending growth has decreased recently 7.0% Average OECD health expenditure growth rates in real terms, 2000 to 2011, public and total 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Total Health Expenditure Public health expenditure Source: OECD Health Data Source: OECD Health database 3

4 but Public spending continues to increase in % of GDP Public Health and LTC expenditure as a % of GDP, OECD countries Source: OECD Health database (2011). 4

5 The share of Health in Public Budgets has also increased (Health+LTC expenditures in % of Total Public Expenditures unweighted average of OECD countries) 5

6 Health is now one of the largest public spending area General Government Expenditure by function (OECD average, 2010) Other 11% General public services 14% Defence 6% Social protection 24% Economic affairs 16% Education 13% Health 16% Source: OECD Health Accounts

7 WHAT DRIVES PUBLIC HEALTH CARE EXPENDITURES?

8 Main expenditure drivers Health care expenditure Demography (I) Income (II) Residual (III) An income elasticity of 1.8 could explain most of the expenditure growth a) Relative prices b) Technology c) Institutions and policies If price elasticity is below 1 then price increases also increase expenditure 8

9 Estimation of the expenditure residual (assuming an income elasticity of 0.8) Health spending per capita (average annual growth rate in %) Health spending Age effect Income effect Residual Memo item: Residual with unitary income elasticity Selected countries: Australia Canada France Germany Italy Japan Korea Portugal Sweden United States Brazil China India OECD total average BRIICS average Total average

10 Modelling the drivers of the expenditure residual a) Relative prices A health relative price was derived from the STAN value-added database (more comparable and producing similar trends as CPI sources): (Health deflator/gdp deflator) b) Technology (quality effect) Technology is proxied for country i by (OECD Data): Q = R&D GDP Total OECD Patents in the Health sector Total OECD patents c) Institutions and policies Currently captured by country specific effects + a time trend (current research using OECD policy indicators on institutional set-up of health care systems) 10

11 Estimation results Dependent variable: log(real health expenditure per capita deflated by quality adjusted health prices) Pooled Fixed effects with Time dummies Fixed effects with Time trend Fixed effects with Time dummies Fixed effects with Time trend Fixed effects with Time dummies Fixed effects with Time dummies Fixed effects with time trend Income elasticity =0.8 Memo item : First differences estimates log(gdpv per capita) 0.914*** 0.394** 0.495*** 0.775*** 0.634*** 0.964*** 0.749*** 0.532*** 0.535*** (0.02) (0.18) (0.13) (0.14) (0.14) (0.14) (0.12) (0.12) (0.12) log (average age of population) 2.603*** 3.007*** 1.399*** 1.396*** 2.611*** 2.606*** 1.342*** 1.471*** 0.962** (0.56) (0.59) (0.45) (0.42) (0.46) (0.42) (0.41) (0.44) (0.43) (1.45) timetr 0.009*** 0.009*** 0.009*** (0.00) (0.00) (0.00) (0.00) log(gdp deflator) 0.453*** 0.482*** 0.929*** 0.777*** (0.08) (0.08) (0.06) (0.06) log(health prices) *** *** (0.07) (0.06) lagged log(technology) 0.908*** 0.918*** 0.919*** 0.912*** 0.930*** (0.03) (0.04) (0.04) (0.03) (0.03) Effect of other exogenous factors: additional annual growth 0.9% Effect of technology: elasticity +0.9 lagged dlog(technology) 1.027*** (0.05) lagged log(quality ajusted health prices) *** *** (0.03) (0.03) Pure price elasticity -0.4 log(relative prices (Health prices/pgdp)) *** *** *** *** (0.06) (0.07) (0.06) (0.06) _cons *** *** ** *** *** *** *** *** *** (2.08) (2.19) (1.78) (1.85) (1.86) (1.90) (1.54) (1.54) (1.38) (0.02) N Combining effect of prices and technology = (-0.4+1)*1.7% + (0.9-1)*2.4% 0.8% per year + 0.9% time trend Residual = 1.7% out of 2% on average for OECD. 11

12 Projecting the residual expenditure growth To sum, part of the residual expenditure growth can be explained by: Relative Prices and Technology 0.8% p.a. Other (eg. institutions and policies) 0.9% p.a. 1.7% p.a. But there is not enough information to project these drivers individually Thus the residual is projected as a whole and sensitivity to different assumptions tested Residual growth is the same for all countries in order not to extrapolate country-specific idiosyncrasies over a long period (e.g. country-fixed effects) 12

13 WHAT DRIVES PUBLIC LONG-TERM CARE EXPENDITURES?

14 Main expenditure drivers Long-term care expenditure Demographic drivers (Nb of dependents) Nondemographic drivers Life expectancy at birth Health expenditure Income elasticity=1 Income Cost-disease Baumol effect=growth rate of total labour productivity (elasticity=1) Informal care supply: women labour force participation 14

15 The profile of dependency ratios by age is similar across European countries age (middle of 5-years age brackets) Source: EC AWG Nb: For the projections an average curve was computed

16 LTC costs per dependent are not related to age age (middle of 5-years age brackets) Assumption used in the projections: average constant cost per age by country

17 WHAT ARE THE PROJECTED HEALTH & LTC EXPENDITURES?

18 Projected levels of Public Health and LTC expenditure (as a % of GDP in 2060) Costpressure scenario Costcontainment scenario Costpressure scenario 8 6 Average Costcontainment scenario LTC Health care 4 Average OECD BRIICS Cost pressure: healthy ageing, income elasticity=0.8, residual=1.7% per year Cost containment: healthy ageing, income elasticity=0.8, residual phasing out over the projection period Convergence mechanism based on differences across countries in health shares to GDP in the base year compared with OECD average 18

19 Projections by country of Public Health + Long-term care expenditures (in % of GDP) 18 % Cost pressure, Cost containment,

20 Changing structure of health expenditures Shares of expenditure by age in total expenditure People aged below 65 People aged over NB: Non-demographic effects are assumed to be homothetic across ages, so they do not change the structure 20

21 Comparison with other projections OECD (2013) OECD (2013) EC - AWG IMF US CBO (Cost-containment scenario) (Cost-pressure scenario) (Reference scenario) (Extended Baseline Scenario) In 2060 % pp difference from 2010 In 2050 % pp In 2060 % pp difference from 2010 difference from 2010 France Germany Italy Netherlands Spain United Kingdom EU USA Source: OECD, IMF, "The Economics of Public Health Care Reform in Advanced and Emerging Economies", European Commission, "The 2012 Ageing Report" and Congressional Budget Office, "The 2012 Long-term Budget Outlook". 21

22 HOW TO FINANCE & MANAGE HEALTH SPENDING?

23 Main issues Temporary cuts vs. long-term effects Short term savings may come at the cost of long-term deteriorations in health service quality that will be hard to un-wind when fiscal capacities improve. Revenues for health may be a challenge as population ages, meaning countries need to find alternative revenue sources Close to half OECD countries rely on wage-based contributions as their predominant financing source. Falls in workforce participation may therefore imply a decline in wages as a share of total income, and therefore, a reduction of the base for financing health expenditure. Sin taxes (tobacco, alcohol and fat taxes) may provide some health benefits, but their ability to raise revenues is limited. The politics of health care means reform is more incremental than in other areas In addition, countries experiences are characterized by situations where Health & Finance interests are not easily split up by interest groups. Source: Main conclusions from the OECD SBO-Health Joint Network s 2 nd Annual meeting March 2013

24 How Public Health care is financed? Sources of revenues for health General Taxation Taxes earmarked to the health system Payroll contributions to social health insurance Mandatory health insurance premiums Australia Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy Japan Luxembourg Netherlands New Zealand Norway Portugal Spain Sweden Switzerland United Kingdom United States Source: OECD Health Committee Survey on Health Systems Characteristics 2012

25 Policy options to contain expenditure A more intense use of generics A revision of re-imbursement practices for drugs with low medical service (and more stringent restrictions on exemptions to this rule) A more frequent re-evaluation of prices of new drugs (in general a more transparent and dynamic pricing of new drugs), centralized bargaining for the purchase of drugs and medical goods in public hospitals, reduction in excessive consumption of specific drugs On in-patient care: shorter length of stay, development of ambulatory hospitalization or more user choice among health providers could help reining in the expenditure growth On out-patient care: a more stringent health monitoring of patients affected by long-term diseases in order to reduce costly complications Financial incentives set on general practitioners to reduce prescription inflation and prevention could also help maintaining the health expenditure on a sustainable path.

26 How do countries control health budgets? Budget tools available if health spending exceeds targets by option Source: OECD Health Committee Survey on Health Systems Characteristics 2012

27 Is Health generating productivity? Pension systems and labour markets favoured early retirement, thus the effect of better health did not materialise. Developed countries have had lower increases in longevity and only mortality rates below 40-year have an impact on growth (Aghion, Howitt and Murtin, 2009) Efforts to increase life expectancy at older ages may have a negative impact on growth, as the resources devoted to health care are at the expense of other factors (Aisa & Pueyo, 2005, 2006) With most of the population covered, an increase of health status is likely to have only a level effect, with little impact on labour productivity growth.

28 Policy issues Increasing share of health expenditures to GDP is mainly driven by technological progress, depending on the design of the health insurance and on the payment systems (Weisbrod, 1991) While some countries are doing well in longevity and health status, these potential resources have been wasted in low participation and early retirement of older workers There strong complementarities across health, labour market, pension reforms and related financial products. A broad reform package implemented at all levels of government could generate large gains

29 Thank you! References: -de la Maisonneuve, C. and J. Oliveira Martins (2013), Public spending on health and long-term care: a new set of projections, OECD Economic Policy Papers no de la Maisonneuve, C. and J. Oliveira Martins (2013), A Projection Method for Public Health and Long-Term Care Expenditures, OECD Economics Department Working Papers, No. 1048, OECD Publishing. 29