Coping With Increasing Health Care Expenditures. Henry J. Aaron and M. James Kondo

Transcription

1 Coping With Increasing Health Care Expenditures By Henry J. Aaron and M. James Kondo

2 Some basic health economics 1. Controlling the level and growth of health care spending is a problem in every developed nation. 2. The health care cost problem can never be entirely solved because the interactions of insurance and new technologies constantly recreate it. 3. All methods of controlling health care spending are second-best and entail difficult trade-offs among the harmful side effects of each method.

3 Per Capita Expenditures on Health Care Selected Countries, Selected Years Country Constant 1990 U.S. dollars, official exchange rates United States $1,034 $2,739 $4,141 Canada $ 821 $1,862 $1,743 France $ 491 $1,845 $1,837 Germany $ 566 $2,063 $2,066 Japan $ 264 $1,459 $1,919 United Kingdom $ 293 $1,041 $1,591

4 Relative outlays, exchange rates, United States = 100 for each year United States Canada France Germany Japan United Kingdom

5 Health Outcomes: Life Expectancy and Infant Mortality, 2002 Country Life Expectancy (Women/Men Infant Mortality (per 1,000 live births) United States Canada France Germany Japan United Kingdom 79.9/ / / / / /

6 More basic health economics 4. Population aging tends to increase health care spending as a share of national income. Japan is aging rapidly. Therefore, per capita health care spending will tend to increase rapidly in Japan. 5. Technological advance almost always lowers prices but increases total spending on the affected commodities. The technology of health care is advancing with extreme speed.

7 Impact of Population Aging on Health Care Spending as a Percentage of GDP Year Increase of health care spending as a result of population aging # Decrease in GDP because of reduced labor force resulting from population aging * Combined effect

8 Excess of Growth of Health Care Spending Over Income Growth, Selected Nations, Selected Intervals Interval Excess Interval Excess Interval Excess Japan United States Canada France Germany United Kingdom

9 Health Care Spending at Various Rates of Growth, Given Effects of Aging and Technological Change Year Aging, plus excess growth of 0.5 percentage points per year 2003 = Health care spending (as a percent of GDP) Year Aging, plus excess growth of 1 percentage points per year 2003 = Health care spending (as a percent of GDP)

10 Two key implications A sizeable increase in Japanese health care spending will tend to occur as population ages and technology advances. To aspire to hold constant the share of GDP spent on health care is unrealistic and probably unwise. If the Japanese economy does not utterly stagnate, it will have sufficient total resources to finance even very rapid and sustained growth in total health care spending while having more resources for other purposes.

11 Major reforms of the Japanese health care system merit serious consideration

12 Relative Drug Prices, Use, and Spending Selected Countries 2004 Country Prices (Japan = 100) Treatment Days (Japan = 100) Average Spending (Japan = 100) Japan France Germany United Kingdom United States

13 Expenditures on Drugs as percent of total health expenditures Year Percent

14 Reforms for serious consideration: 1. Government policy should continue to discourage physicians from having any financial interest in how many or which drugs they describe

15 Lengths of Stay, In-patient Care Selected Countries, Selected Years Year Canada France Germany Japan U.K. U.S.A

16 Reforms for serious consideration: 1. Government policy should continue to discourage physicians from having any financial interest in how many or which drugs they describe. 2. DRGs covering just forty diagnostic categories would probably account for 60 percent of hospital revenues. Such a system is feasible and would reduce providers incentives to extend hospital stays

17 Reforms for serious consideration: 1. Government policy should continue to discourage physicians from having any financial interest in how many or which drugs they describe. 2. DRGs covering just forty diagnostic categories would probably account for 60 percent of hospital revenues. Such a system is feasible and would reduce providers incentives to extend hospital stays. 3. Growth of medical knowledge and the variety of services is explosive. It is highly desirable that hospitals and physicians be subject to periodic recertification.

18 Reforms for serious consideration: 1. Government policy should continue to discourage physicians from having any financial interest in how many or which drugs they describe. 2. DRGs covering just forty diagnostic categories would probably account for 60 percent of hospital revenues. Such a system is feasible and would reduce providers incentives to extend hospital stays. 3. Growth of medical knowledge and the variety of services is explosive. It is highly desirable that hospitals and physicians be subject to periodic recertification. 4. Japanese medical practice suffers from the unevenness of total remuneration of physicians. This problem is linked to the maintenance of clinics by independent general practitioners who are relatively highly compensated. Thus, systemic changes in the economics of medical practice merit priority over efforts to lower fees.

19 Reforms for serious consideration: 3. Growth of medical knowledge and the variety of services is explosive. It is highly desirable that hospitals and physicians be subject to periodic recertification. 4. Japanese medical practice suffers from the unevenness of total remuneration of physicians. This problem is linked to the maintenance of clinics by independent general practitioners who are relatively highly compensated. Thus, systemic changes in the economics of medical practice merit priority over efforts to lower fees. 5. Increased charges on beneficiaries would help control public spending on health care. An income related, monthly premium, ranging from zero to 10,000 and averaging 5,000 for each of the 23 million elderly in Japan would have generated nearly 1.4 trillion in 2002 or about 10 percent of health care spending on the elderly.

20 Summary 1. The principal problems facing the Japanese health care system ones of organization and quality control, not cost 2. Cost increases are virtually inescapable and, on balance, desirable. 3.Shifting costs from the public sector to those beneficiaries who can afford to pay them can help control Japan s budget deficits.