WHAT FUTURE FOR HEALTH AND LONG-TERM CARE SPENDING? Christine de la MAISONNEUVE Joaquim OLIVEIRA MARTINS OECD The future of health spending and the implications for policy, Bruegel Panel Discussion Brussels, 26 June 2013 1
Steady growth of public Health + LTC spending Public Health and LTC expenditure as a % of GDP, OECD countries Source: OECD Health database (2011). 2
WHAT DRIVES HEALTH EXPENDITURES? Health care expenditure Demography Income Residual Only an income elasticity of 1.8 could explain most of the expenditure growth Relative prices Technology Institutions and policies With low price elasticity (<1) a price increase also increases expenditure 3
Health care expenditures seem to be related with Age (Health expenditures per capita by age group) 10 20 30 0 Spending p.c. in group [i] normalised by GDP p.c. 2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 age (middle of 5-years age brackets) Sources: EC + National sources 4
04 59 1014 1519 2024 2529 3034 3539 4044 4549 5054 5559 6064 6569 7074 7579 8084 8589 9094 95+ 04 59 1014 1519 2024 2529 3034 3539 4044 4549 5054 5559 6064 6569 7074 7579 8084 8589 9094 95+ 36 32 28 24 20 16 12 8 4 0 Aging per se can only explain a small part Health care expenditure curve Costs related to the proximity to death are independent of age Time to death (months) Survivors costs may shift with healthy ageing Healthy ageing 5
Health expenditures grow in line with income 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1993 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Public health expenditure and GDP (in logs) Health expenditure per capita (LHS) GDP per capita (RHS) 8.2 8.0 7.8 United States 10.7 7.8 10.7 7.7 10.6 7.6 10.6 France 7.8 7.7 7.6 Sweden 10.5 10.5 10.5 7.5 7.5 7.6 7.4 10.5 7.4 7.3 10.2 7.4 10.2 7.3 10.2 10.2 10.1 10.1 7.2 7.2 10.1 7.2 10.0 7.9 7.8 7.8 7.7 Germany 10.5 7.6 7.6 7.5 7.5 Japan 7.7 7.7 7.6 7.6 7.5 Canada 10.6 10.5 10.5 7.7 7.4 7.5 7.6 7.6 7.5 7.4 7.3 10.2 7.3 10.2 10.2 7.4 7.4 7.3 7.3 10.2 7.5 10.2 7.2 10.2 7.2 10.2 Recent studies point towards a relation lower than 1:1 ( 0.7-0.9) 6
What is the expenditure residual? Average annual growth rate 1995-2009 of health expenditures per capita (in %) Health spending Age effect Income effect Residual Memo item: Residual with unitary income elasticity Selected countries: Australia 4.1 0.4 1.7 1.8 1.4 Canada 2.6 0.6 1.3 0.8 0.5 France 1.6 0.5 0.9 0.3 0.0 Germany 1.7 0.6 0.8 0.2 0.0 Italy 3.1 0.6 0.4 2.1 2.0 Japan 2.7 1.2 0.4 0.7 0.5 Korea 11.0 1.1 3.1 6.5 5.7 Portugal 4.6 0.6 1.2 2.4 2.0 Sweden 3.2 0.2 1.6 1.4 1.0 United States 3.6 0.3 1.1 2.3 2.0 Brazil 4.8 0.6 1.2 2.9 2.6 China 11.2 0.6 7.3 3.0 1.3 India 6.6 0.3 4.2 2.0 1.0 OECD total average 4.3 0.5 1.7 2.0 1.5 BRIICS average 6.2 0.5 3.2 2.5 1.7 Total average 4.6 0.5 2.0 2.0 1.5 With an income elasticity of 0.8 7
How to project the expenditure residual? A large part of the residual expenditure growth (on average 2% per annum) can be explained by: Relative Prices and Technology 0.8% p.a. Other (e.g. institutions and policies) 0.9% p.a. 1.7% p.a. But these drivers cannot be projected individually, so the residual is extrapolated as a whole and sensitivity to different assumptions tested The residual is the same for all countries in order not to extrapolate current country-specific idiosyncrasies over a long period 8
Very different drivers for Long-term care Long-term care expenditure Demographic drivers (nb of dependents) Nondemographic drivers Life expectancy at birth Health care expenditure Income (elasticity=1) Income Weak Productivity Cost disease is driven by the growth rate of aggregate labour productivity (elasticity=1) Informal care supply Labour force participation 50-64 9
Dependency increases dramatically with Age > 75 20 40 60 80 0 2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 age (middle of 5-years age brackets) Source: EC AWG Nb: For the projections an average curve was computed
0 50 100 150 200 LTC costs/dependent are not related to Age 2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97 age (middle of 5-years age brackets) Assumption used in the projections: average constant cost per age by country Source: EC AWG
Public LTC expenditure as a % of GDP LTC expenditure levels and Income 3.0 2.5 2.0 y = 1.1855x - 11.348 R² = 0.3288 1.5 1.0 0.5 0.0 9 9.2 9.4 9.6 9.8 10 10.2 10.6 10.8 Log Real GDP per capita (2005 PPP US$)
Projected levels of Public Health and LTC expenditure (as a % of GDP in 2060) 16 14 Costpressure scenario 12 10 Costcontainment scenario Costpressure scenario 8 6 Average 2006-2010 Costcontainment scenario LTC Health care 4 Average 2006-2010 2 0 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 13
Changing age structure of Health expenditures Expenditure shares below and above 65 70 60 People aged below 65 People aged over 65 50 40 30 20 10 0 2010 2030 2060 NB: Non-demographic effects are assumed to be homothetic across ages, so they do not change the age structure of spending 14
How it compares 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 2.2 6.1 1.4 2.6.. Germany 2.3 6.2 1.4 1.5.. Italy 2.6 6.4 0.6 1.1.. Netherlands 2.4 6.3 1.0 4.9.. Spain 2.8 6.7 1.3 3.5.. United Kingdom 2.0 5.9 1.1 8.2.. EU15 2.4 6.2 1.1 4.5.. USA 2.2 6.1.. 11.3 7.3 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". 15
THANK YOU! 16