Managing Healthcare Expenditures: Fiscal Projections and Effects of Reforms

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1 Managing Healthcare Expenditures: Fiscal Projections and Effects of Reforms SANJEEV GUPTA DEPUTY DIRECTOR, FISCAL AFFAIRS DEPARTMENT TOKYO, JUNE 6, 2016

2 Outlook of Public Health Spending

3 Percent of GDP Public health spending is projected to rise substantially 14 Public Health Spending: 2015, 2050 and Advanced economies Developing economies 2

4 Percent of GDP There are large variations across countries 7 Projected Increases in Public Health Spending: Australia Japan Korea Indonesia India China Advanced economies Developing economies 3

5 Several factors underlie the increases Main drivers are expected to persist Population aging Income growth Advances in medical technologies Health insurance coverage will continue to expand in developing economies Recent slowdown in health spending growth is most likely temporary There are large uncertainties in the projections which could be potentially much higher 4

6 Percent of GDP Public debt is at historic highs in advanced economies Advanced Economies: Public Debt-to-GDP Ratio, Post WWII Great Depression Global Financial Crisis

7 Percent of GDP Public debt in emerging economies has been rising 60 Emerging Market Economies: Public Debt-to-GDP Ratio,

8 Developing economies also face additional fiscal challenges Revenue-to-GDP ratios are low Competing needs in education, public investment and other development areas also require increases in resources Coverage and benefit expansion should be done in a fiscally sustainable manner 7

9 Large inefficiencies exist in many economies Health Adjusted Life Expectancy (years) China Singapore Japan United States Per Capita Health Spending (PPP) 8

10 Health Care Reform in Advanced Economies

11 Country experiences suggest five viable options to contain public health spending growth Budget caps (Italy and Sweden) Greater sub-national government involvement (Canada and Sweden), gate-keeping and case-based payment (Germany and Italy) grouped under public management and coordination 10

12 Country experiences suggest five viable options to contain public spending growth Competition and choice (Germany and Japan) Greater reliance on private financing, especially of complementary health care outside public package (Australia, Canada, and France) Restricting the supply of health inputs and outputs (Canada) 11

13 Percent of GDP The impacts of these reforms could be substantial Average Reform Impacts on Public Health Spending, (Decrease Relative to Benchmark Projections) Competition Public Budget caps Demand side Supply and choice management constraints 12

14 Additional reforms that can help improve efficiency and contain spending Improved health information technology (HIT) could help improve efficiency Greater emphasis on primary and preventive care could also contribute to expenditure containment 13

15 Health Care Reform in Developing Economies

16 Developing economies lag behind in health outcomes and coverage Life Expectancy Infant Mortality (% of GDP) Public Expenditure Private Insurance Out-Of-Pocket Advanced Developing 0 0 Advanced Developing 15

17 Developing economies should learn from the experiences of advanced economies Cost containment is one of the biggest challenges following a successful coverage expansion (Korea, Taiwan Province of China); there are pressures from both demand and supply side Improving efficiency is the key to long-term system performance The private sector can play an important role, but government regulation helpful due to imperfections of the health market 16

18 Country experiences suggest a range of approaches to improve efficiencies and contain costs Budget constraints can be an effective policy, in particular for countries that have achieved universal coverage Minimization of fee-for-service payments to providers is one of the most important step to avoid unproductive cost escalation Implementation of reference pricing, policies to control health care supply, strategic purchasing, and gatekeeping arrangements can help lower costs Postponing the incidence of non-communicable diseases by scaling up population-based and clinical packages 17

19 Lessons can also be drawn for health coverage expansion Benefit packages should be restricted to most essential services as coverage expands (China, India and Mexico) Expansion should be tax-financed if labor market informality is high Improvements in the composition of spending (allocating more resources to combat infectious diseases and increasing spending to rural areas) can lead to better health outcomes without incurring additional costs 18

20 A single payer system has several advantages This is suggested by reform experiences in both advanced and developing economies (Estonia, Korea, and Taiwan Province of China) It allows for more extensive risk pooling (also allows redistribution of revenues across regions), and can help improve efficiency and control administrative cost It provides a better platform to achieve equity in terms of benefit package and access It can also perform well in terms of promoting choice when combined with private provision 19

21 Conclusion

22 Summary Projected increases in public health spending pose a fiscal challenge for many economies Managing expenditure should be an important part of the reform strategy, particularly given large inefficiencies in the health sector Countries experiences show that a range of potential reforms can help improve efficiencies and contain spending 21

23 Thank you!