HEALTH CARE AND THE SUSTAINABILITY OF PUBLIC FINANCES Fabio Pammolli Roma, 20 Ottobre 2009
TRENDS< ECOFIN PROJECTIONS OECD PROJECTIONS MICRO MACRO IMBALANCES CONCLUDING DISCUSSION
Total expenditure (pub + priv) % Gdp 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 15 13 11 9 7 5 3 FR DE IT ES SE UK USA 1 LONG TERM TRENDS TOTAL EXPENDITURE
95 85 75 Public coverage % total expenditure (Usa dx scale) 65 55 45 50 45 40 35 30 25 20 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 FR DE IT ES SE UK USA LONG TERM TRENDS PUBLIC COVERAGE
82 80 Life expectancy at birth 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 78 76 74 72 FR DE IT ES SE UK USA 70 68 LIFE EXPECTANCY AT BIRTH (MEN AND WOMEN)
Life expectancy at 65 (men) 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 19 18 17 16 15 14 13 12 FR DE IT ES SE UK USA 11 LIFE EXPECTANCY AT 65 (MEN)
Life expectancy at 65 (women) 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 23 22 21 20 19 18 17 16 15 FR DE IT ES SE UK USA 14 LIFE EXPECTANCY AT 65 (WOMEN)
SP 2002 SP 2003 SP 2004 SP 2005 SP 2006 SP 2007 SP 2008 incidence in the base year (ex.: SP 2002 SP 2008), base base base base base base base as % of the long run 2050 2050 2050 2050 2050 2050 2050 year year year year year year year increment projected in the last SP 58 5,8 85 8,5 58 5,8 79 7,9 58 5,8 79 7,9 58 5,8 79 7,9 59 5,9 83 8,3 59 5,9 83 8,3 42% 4,2% Belgium 6,2 8,2 6,6 8,7 6,9 9,3 7,3 9,5 7,1 10,8 SP n.a. (5) 24,3% Denmark 7,4 9,2 7,5 9,3 8,1 10,4 8,3 11,0 8,2 10,4 7,6 10,3 7,5 9,2 5,9% Finland 6,2 7,9 6,2 9,1 6,7 10,1 7,3 11,7 7,3 10,5 7,3 10,5 34,4% France 7,4 9,1 9,9 6,9 8,9 9,4 Germany 6,0 7,1 5,7 7,1 6,6 7,7 6,0 7,3 7,0 8,3 7,0 8,3 Greece 4,8 6,6 4,8 6,6 5,0 6,6 12,5% Ireland 6,6 9,1 6,6 10,2 5,9 8,5 5,9 8,5 0,0% Italy 5,5 7,5 6,0 7,6 6,3 8,1 6,3 7,8 6,5 8,1 6,7 8,6 6,7 8,6 63,2% Luxemb. 6,0 7,8 6,0 7,8 Netherl. 10,7 6,6 8,5 6,6 8,5 Portugal 5,3 6,1 6,3 8,1 6,3 8,0 6,8 7,8 7,2 8,1 100% Spain 6,6 9,1 6,6 9,1 Sweden 9,6 14,4 10,1 14,7 10,1 14,2 10,5 14,8 9,7 14,0 10,3 12,6 30,4% U. K. 7,2 11,0 7,1 10,8 7,9 11,0 8,4 11,7 9,6 11,9 9,6 11,9 104,3% HEALTH CARE EXP. IN SPs
TRENDS ECOFIN PROJECTIONS< OECD PROJECTIONS MICRO MACRO IMBALANCES CONCLUDING DISCUSSION
Awg reference scenario % Gdp acute expenditure 2007 2007 2060 2060 FR 8,1 1,2 DE 7,4 1,8 Europop 2008 Per capita exp. per age sex grows at the same rate as per capita Gdp Per capita demand has an elasticity to per capita Gdp of a IT 5,9 1,1 1,1 in 2007, and then starts converging gcontinuously to ES 55 5,5 16 1,6 unity until 2060 SE 7,2 0,8 UK 7,5 1,9 UE 15 6,9 1,5 UE 27 6,7 1,5 Awg reference scenario % Gdp LTC expenditure 2007 2007 2060 FR 1,4 0,6 DE 0,9 1,4 IT 1,7 1,3 ES 0,5 0,9 SE 3,5 2,3 Every year, the age sex profile shifts by half the change in life expectancy (dynamic i profiling) ) Europop 2008 Per capita exp. per age sex grows at the same rate as Gdp per worker, except for cash provisions, for which the reference is per capita Gdp Demand elasticity is always equal to unity UK 08 0,8 05 0,5 Every year, disability rates decrease by half of the decrease in age specific mortality rates (dynamic profiling) UE 15 1,3 1,2 UE 27 1,2 1,1 The probability of receiving formal care is held constant at the 2007 value LT SUSTAINABILITY: ASSUMPTIONS
Italy in the Ageing greport 2009 Ageing Report 2009: technological scenario for acute expenditure Demand elasticity to per capita Gdp 0,7, 07 with a technological mark up of 2 p.p. [+2 p.p. : +4 p.p.] by 2060 "Technological" scenario % Gdp acute expenditure 2007 2007 2060 FR 14 1,4 68 6,8 DE 0,9 7,2 IT 1,7 5,3 ES 05 0,5 56 5,6 SE 3,5 5,4 UK 0,8 7,4 UE 15 13 1,3 64 6,4 UE 27 1,2 6,3 Historically, so the rate aeof growth go of per capita expenditure has been higher than the rate of per capita Gdp by 1 2 pp p.p. THE IMPACT OF EXTRA DEMO DRIVERS (AGEING REPORT 2009)
TRENDS ECOFIN PROJECTIONS OECD PROJECTIONS< MICRO MACRO IMBALANCES CONCLUDING DISCUSSION
With respect to Ecofin: macroeconomic assumptions sufficiently aligned dynamic profiling as Ecofin but With demo and extra demo drivers % Acute acute and long term Gdp The rate of growth of per capita exp. is equal to the 2005 rate of per capita Gdp multiplied by 1,2 and with a 2005 further spread of 1,1 gradually converging gto zero by 2050 2050 FR 8,1 7,1 Otherwise, when elasticity is unitary, the rate of growth DE 8,8 6,0 of per capita exp. has a permanent spread of 1 p.p. on IT 66 6,6 94 9,4 the rate of per capita Gdp ES 5,5 7,2 Long term care SE 8,6 4,2 The dimension of formal assistance is inversely UK 72 7,2 57 5,7 proportional to the activity rate in the age 50 64, that is UE 15 7,2 6,4 supposed to converge to 70% for all Countries (today, in UE 27 6,7 6,9 Italy is approximately 66%) Dependency ratios have two simultaneous dynamics: a decreasing one over long periods, and an increasing one year by year Per capita exp. grows at the same rate as Gdp per worker OECD PROJECTIONS
TRENDS ECOFIN PROJECTIONS OECD PROJECTIONS MICRO MACRO IMBALANCES< CONCLUDING DISCUSSION
Sustainability Report 2009: 2% is the structural primary balance in 2009; 3,9% is the constant structural primary balance necessary to reach a debt/gdp ratio equal to 60% by 2060; 3,4% is the constant structural primary balance necessary to satisfy the public budget constraint over an infinite horizon Awg reference scenario projections: to stabilize the incidence on Gdp of public exp. at the current level, public coverage should decrease from the current 75% to 50% by 2050. Oecd projections (or Ecofin technological scenario): to reach the goal of a debt/gdp ratio equal to 60% by 2060, we would need a path of primary balances continuously growing from 3,9% 9%to at least 10% 11% 11% FROM PROJECTIONS TO IMBALANCES 1
Today, any active person finances pension and health care exp. dedicated to any 65+ with resources amounting to 31% of per capita Gdp. By 2050, it will be 42,2% under the Awg reference scenario for pension and health care; and it will be 48,6% if the Oecd scenario for health care is considered. In Ue 15, these three percentages are respectively 25,2, 38,3 e 45% Today, any employed person finances pension and health care exp. dedicated to any 65+ with resources amounting to 52,6% of per capita Gdp. By 2050, it will be 62,3% under the Awg reference scenario for pension and health care; and it will be 71,5% if the Oecd scenario for health care is considered. In Ue 15, these three percentages are aerespectively e 36,2,, 51,5,5ee 60,4% A strong impact on public Paygo monopillar systems Both systems à la Bismarck and à la Beveridge are involved Increments of incidence also for countries like France, Germany, Sweden FROM PROJECTIONS TO IMBALANCES 2
Even under an intermediate scenario between Awg reference and Oecd, by 2050 the incidence of public health care exp. on Gpd will reach approximately the same level as public pension expenditure (in the long run stabilized at 14%) How to finance other welfare institutions/instruments? Composition of welfare expenditure, recovery, growth Redistributive functions need Paygo FROM PROJECTIONS TO IMBALANCES 3
Diversification of welfare expenditure (Herfindahl index) Eurostat (pub & priv) Ecofin (pub) BE 23,53% 28,53% DK 23,66% 28,15% DE 24,62% 32,87% IE 25,56% 28,61% EL 28,34% n. a. ES 27,16% 31,58% FR 25,18% 34,25% IT 34,34% 37,32% LU 19,48% 35,87% NL 24,97% 28,17% AT 26,16% 36,95% PT 28,45% 32,81% FI 22,32% 28,76% SE 24,94% 25,99% UK 28,91% 29,90% UE 15 25,84% 31,41% Whatis going to happen to this index in the long run? Italy is invited to: [ ] improve the quality of public finances by focusing on spending efficiency and composition, also by reallocating social expenditure so as to create room for a more comprehensive and uniform unemployment benefit system that ensures appropriate work incentive and effective activation policies, without compromising the fiscal consolidation process PF Emu 2009 FROM PROJECTIONS TO IMBALANCES 4
per capita public health care expenditure variation expected after per capita public health care standardization expenditure and scaling by quality efficient level (Euro) average 1997 2007 (constant Euro 2000) % difference between current expenditure and effic target Campania 1.215 388 827 31,9% Sicilia 1.155 285 870 24,7% Puglia 1.149 264 885 23,0% Lazio 1.395 238 1.157 17,1% Trentino A. A. 1.439 246 1.193 17,1% Liguria 1.423 200 1.223 14,1% 1% Abruzzo 1.265 164 1.101 13,0% Molise 1.303 161 1.142 12,4% Calabria 1.157 129 1.028 11,1% Basilicata 1.125 102 1.023 9,1% Valle dʹaosta 1.451 128 1.323 8,8% Sardegna 1.233 77 1.156 6,2% Toscana 1.253 33 1.220 2,6% Veneto 1.215 30 1.185 2,5% Emilia Romagna 1.300 25 1.275 1,9% Marche 1.234 19 1.2151 1,5% Lombardia 1.206 11 1.195 0,9% Piemonte 1.250 6 1.244 0,5% Friuli V. G. 1.266 20 1.286 1,6% Umbria 1.266 36 1.302 2,8% Regions involved in a formal plan, approved by the State, to consolidate health care expenditure and reabsorb past deficits generated by the health care system 2007 2008: 67 billions (4,3% of Gdp) FEDERALISM, EFFICIENCY, COORDINATION BETWEEN GOV. LAYERS ( SANIREGIO BY CERM)
Dependency ratios 2007 2012 2025 2050 dependency ratio * d.r. corrected by employment and productivity dependency ratio * d.r. corrected by employment and productivity ** dependency ratio * d.r. corrected by employment and productivity** dependency ratio * d.r. corrected by employment and productivity ** North West 52,4 79,5 55,0 80,9 1,4 60,5 8,1 89,0 9,5 81,1 28,7 119,4 39,8 North East 52,4 80,9 54,7 83,0 2,1 58,9 6,5 89,4 8,5 79,7 27,3 120,9 40,0 Centre 52,8 89,0 54,5 87,0 2,0 60,4 7,6 96,4 7,4 83,6 30,8 133,4 44,4 South 49,8 138,8 50,3 110,2 28,6 60,0 10,2 131,4 7,4 93,1 43,3 204,0 65,1 * Istat central scenario. ** Current level of productivity. Partial convergence to Lisbon target. DEPENDENCY RATIOS
TRENDS ECOFIN PROJECTIONS OECD PROJECTIONS MICRO MACRO IMBALANCES CONCLUDING DISCUSSION<
Potential pressure vs. projections that already take into account interventions to stabilize the incidence on Gdp? Trade off between sustainability and coverage Diversification of welfare expenditure and of financing Coordination between different layers of government Efficiencyofhealth care systems CONCLUDING DISCUSSION
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