delsa/gov health - session 1 - ankit kumar - oecd

WHAT IS THE ‘FISCAL SUSTAINABILITY’ OF HEALTH?

3rd Annual Meeting of the Joint Network on Fiscal Sustainability of Health Systems 24 April 2014 Ankit Kumar OECD Secretariat

1. Health spending is likely to continue to grow as a share of the economy

2. This will demand a public budget response: – Accommodating for greater health spending as a share of

government budgets may not be a bad thing

– Considerable scope to increase productivity in health

3. In the long term, we may need to de-link the correlation between health as a share of budgets and health as a share of the economy

2

Key points

• The general and not the specific case

• Bias towards high income OECD countries

• Economic sustainability not accounting balance

3

Caveats and clarifications

HEALTH AND THE ECONOMY

4

Health spending outpaced economic growth in the pre-crisis period

Source: OECD Health Statistics 2013 5

Annual growth rate of health spending per capita and real GDP per capita, 2000-2009

AUS

AUT

BEL CAN

CHI

CZE

DEN

EST

FIN

FRA DEU

GRC

HUN

ISL

IRL

ISR ITA

JPN

KOR

LUX

MEX

NLD

NZL

NOR

POL

PRT

SVK

SVN ESP

SWE

CHE

GBR

USA

0%

2%

4%

6%

8%

10%

12%

-1% 0% 1% 2% 3% 4% 5% 6%

Ave

rage

an

nu

al g

row

th r

ate

in r

eal h

ealt

h

exp

end

itu

re p

er c

apit

a

Average annual growth rate in real GDP per capita

6

The crisis has moderated rapid growth in health spending

5.3

7.0

1.6

7.2

1.8

5.3

3.3 3.

8

5.9

4.1

1.6

3.0 4.

1

2.2 2.

8 3.7

3.1

2.1

3.5 4.

5 5.5

7.1

3.4

1.9

3.9

3.4

2.1 3.

1

10.9

1.3

2.8

7.5

9.3

-11.

1

-6.6

-3.8

-3.0

-2.2

-1.8

-1.8

-1.2

-0.8

-0.5

-0.4

0.0 0.2

0.2 0.5

0.6 0.7

0.7

0.8

0.8 1.0 1.2

1.3

1.4 1.6 1.8 2.1 2.

6 2.8 3.

4

4.9 5.

5 6.3

-15

-10

-5

0

5

10

15

Gre

ece

Irela

nd

Icel

and

Est

onia

Por

tuga

l

Uni

ted

Kin

gdom

Den

mar

k

Slo

veni

a

Cze

ch R

epub

lic

Spa

in

Italy

Aus

tralia

OEC

D32

Aus

tria

Nor

way

Bel

gium

Mex

ico

Fran

ce

Can

ada

New

Zea

land

Net

herla

nds

Pol

and

Uni

ted

Sta

tes

Sw

itzer

land

Finl

and

Sw

eden

Ger

man

y

Hun

gary

Slo

vak

Rep

ublic

Isra

el

Japa

n

Chi

le ¹

Kor

ea

2000-2009 2009-2011

1. CPI used as deflator. Source: OECD Health Statistics 2013

Annu

al a

vera

ge g

row

th ra

te (%

)

Annual average growth rate in per capita health expenditure, real terms, 2000 to 2011 (or nearest year)

Presenter

Presentation Notes

We think this is a growth effect and not an ageing effect.

7

But even still, health has been a major contributor to growth over the last decade

Contribution of health to growth in GDP per capita (%), 2000 to 2011

Presenter

Presentation Notes

Important story about dynamic vs. established economies here and the role of the health sector as somewhere that chews up disposable income and is not as sensitive to economic changes

Health and social care is a fast growing source of employment in many countries

Source: OECD Database on Labour Force Statistics, countries selected reflect the availability of data 8

Change in employment between 2000 and 2011, various industries

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Ireland Spain Australia Canada UnitedKingdom

Austria France Finland CzechRepublic

All activities Agriculture Industry Services Human health and social work activities

Presenter

Presentation Notes

Important to remember that agriculture, industry, services are higher level and that health is part of services

There are complex relationships between health, lifestyle and labour force participation

Employment Wages Absenteeism

Obesity

Lower probability of

employment

Larger wage penalties

(Lundborg et al. 2010, Sweden)

More sickness absences,

especially for women

Alcohol Use

Long-term light

drinkers have better employment opportunities

(Jarl et al 2012, Sweden)

Moderate drinking positively associated with

wages

(Hamilton and Hamilton 1997, Canada)

Absences 20% higher

among abstainers, former and heavy

drinkers

(Vahtera et al 2002, Finland)

Smoking

Heavy smokers more

likely to be unemployed (Jusot et al. 2008, France)

Less evidence

Smokers earn 4-8% less than non-smokers

(Levine et al. 1997, USA)

Smokers 33% more likely

to be absent from work than non-smokers

(Weng et al. 2012, meta-analysis)

9

Presenter

Presentation Notes

Mental health and work – productivity losses from sickness due to mental health is large.

Increased health spending will be a major pressure on public budgets across all OECD countries

Source: OECD Economic Policy Paper n°06, 2013 10

0%

2%

4%

6%

8%

10%

12%

Average public spending 2006-2010 Increase of public spending 2010-2030 Increase of public spending 2030-2060

% GDP

Drivers of healthcare expenditure growth between 1995 and 2009 in OECD countries

Ageing is not the key driver of health spending growth

Healthcare expenditure growth (100%)

Demography (12%)

Age structure

Health by age

Income (42%)

Residual (46%)

Relative prices

Technology

Institutions and policies

Source: OECD Economic Policy Paper n°06, 2013

11

• Implications: – Intergenerational transfer – As ageing is not the driver, so we cannot ‘ride out’

health spending by letting budgets run into deficit – The policy challenges are relative budget priority, the

boundaries of financing, and productivity

What do we mean by fiscal sustainability?

12

IMF: The capacity of a government, at least in the future, to finance its desired expenditure programs, to service any debt obligations […] and to ensure its solvency.

EU: This considers the ability of the government to meet the costs of its current and future debt through future revenues (Indicator S1). The finite version of the budget constraint is assessed with reference to a target date of 2030 and a target level of debt of 60 % of GDP (Indicator S2)

13

Debt serviceability and health

Fiscal consolidation requirements and projected change in health and pensions, 2014-2030

Presenter

Presentation Notes

Take the EU on wisdom that 60% is scientific and appropriate. All countries have a health financing challenge – can they accommodate changes to health and pensions in the order of 0.5% to 7%? Some countries face a fiscal consolidation challenge at the same time.

14

IMF: Assessing fiscal vulnerability

Source: IMF Fiscal Monitor, April 2014

Presenter

Presentation Notes

Check notes here

HEALTH IN GOVERNMENT BUDGETS

15

It is unlikely that countries will want to step back from covering 100% of their population

100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 99.9 99.9

88.9 99.9

99.0 99.5

98.8 97.2

79.8 96.6

95.2 92.9

86.7 31.8

0.2

11.0

0.9

17.0

53.1

0 20 40 60 80 100

AustraliaCanada

Czech Rep.Denmark

FinlandGreece

HungaryIcelandIreland

IsraelItaly

JapanKorea

New ZealandNorway

PortugalSloveniaSweden

SwitzerlandUnited Kingdom

AustriaFrance

GermanyNetherlands

SpainTurkey

BelgiumLuxembourg

ChilePoland

Slovak Rep.EstoniaMexico

United States

Total public coverage Primary private health coverage

Percentage of total population 16

Source: OECD Health Statistics, 2013

17

Countries have allowed health to become a bigger share of their budget

Source: OECD National Accounts Statistics (Database).

Change in the structure of general government expenditures on average in OECD countries, 1995 to 2012

4.4%

3.3%

0.4% 0.3% 0.2% 0.1%

-0.7% -0.9%

-3.7% -4.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

SocialProtection

Health Education Environmentand Protection

Public orderand safety

Recreation,culture and

religion

Defence Housing andcommunity

services

General Publicservices

EconomicAffairs

Presenter

Presentation Notes

It may not be a bad thing for health to crowd out less efficient forms of government spending. At an economy wide level, people may be willing to pay. At a public finance level: if we think health is important for well being and good for growth, why not prioritise it in public budgets as well? Health en viron 15% des dépenses publiques Social protection 35% en moyenne OCDE: ● Sickness and disability. ● Old age. ● Survivors. ● Family and children. ● Unemployment. ● Housing. ● Social exclusion n.e.c. ● R&D social protection. ● Social protection n.e.c. Education (12%) Economic affairs : ● General economic, commercial and labour affairs. ● Agriculture, forestry, fishing and hunting. ● Fuel and energy. ● Mining, manufacturing and construction. ● Transport. ● Communication. ● Other industries. ● R&D economic affairs. ● Economic affairs n.e.c. General public services 13.5%: ● Executive and legislative organs, financial and fiscal affairs, external affairs. ● Foreign economic aid. ● General services. ● Basic research. ● R&D general public services. ● General public services n.e.c. ● Public debt transactions. ● Transfers of a general character between different levels of government. Autres: - Environmental protection : ● Waste management. ● Waste water management. ● Pollution abatement. ● Protection of biodiversity and landscape. ● R&D environmental protection. ● Environmental protection n.e.c. - Housing and community amenities : ● Housing development. ● Community development. ● Water supply. ● Street lighting. ● R&D housing and community amenities. ● Housing and community amenities n.e.c. - Recreation, culture and religion : Defence : ● Military defence. ● Civil defence. ● Foreign military aid. ● R&D defence. ● Defence n.e.c. Public order and safety: ● Police services. ● Fire protection services. ● Law courts. ● Prisons. ● R&D public order and safety. ● Public order and safety n.e.c.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aus

tral

ia

New

Zea

land

Nor

way

Uni

ted

Kin

gdom

Swed

en

Chi

le

Hun

gary

Fran

ce

Aus

tria

Slov

enia

Kor

ea

Pola

nd

Ger

man

y

Net

herl

ands

Est

onia

Cze

ch r

epub

lic

Slov

ak r

epub

lic

Other

“Sin” taxes

Taxes on profits (.e.gcompany taxes)

Taxes on goods andservices

Mandatory healthinsurance premiums

Payroll contributions/taxes

General and income taxes

Source: SBO survey and OECD Secretariat estimates

Our models do not account for shortfalls in revenues for countries that rely heavily on payroll taxes

Presenter

Presentation Notes

Some health insurance countries have realised that funding relying only on workers’ contributions is not enough: Sensitive to employment choks; Increases the cost of labour in some countries with high unemployment rates; Projections of dependency ratio are not good at all. In France, for instance, almost 40% of funding are taxes (70% still rely on work-related income but larger income base) Some countries have envisaged sin taxes (earmarked to health care in France) but not big + if really effective, not a durable source of revenues BUT they are effective if well implemented to reduce unhealthy behaviour.

• ‘Sin taxes’ are increasingly being used by OECD countries

– These taxes target lifestyle choices that can affect productivity and employment outcomes.

– The arguments for using taxes to attain public health

objectives are strong for tobacco products and alcohol. – The poor are likely to pay more but have greater health

benefits.

Some new taxes could be effective in improving health, but will not be major sources of revenue

19

Presenter

Presentation Notes

Other than sin taxes, only environment is a serious new option for the future.

20

Source: Paris et al., Measuring coverage (Forthcoming) from Busse, Schreyögg et Gericke, 2007

• Need to de-link increases in health spending as a share of the economy from health as a share of public budgets

• Clearly defining what is publicly funded is preferable to broad based co-payments

• Private health insurance not

necessarily cost reducing

Boundaries between public and private need to be debated

• Be more specific and selective in defining the range of services covered

• Health systems have become better at assessing new activities, but this misses most spending: – Cost effectiveness analysis studies are used to assess

whether a new service or drug should be funded – A more systematic assessment of therapeutic strategies by

disease should be conducted

• Most countries already have institutions in charge of the incremental approach

21

A better way to cost share

REDUCING INEFFICIENCY, IMPROVING PRODUCTIVITY

AND SHIFTING FOCUS

22

23

Improving health sector productivity can dramatically change the fiscal outlook

Sensitivity of public sector net debt projections to interest rates

Sensitivity of public sector net debt projections to health productivity

Source: Fiscal Sustainability Report, UK Office for Budget Responsibility, July 2013

The target areas for expenditure control are well known among Finance Ministries

24

0 5 10 15 20

Outpatient care spending

Primary health care services

Spending on prevention programs

Long term care spending

Pharmaceutical costs

Hospital expenditure

Source: OECD Survey on Budget Practices and Procedures, 2013

Number of countries

Self-reported priorities for expenditure control, 22 OECD countries

25

The crisis has been used to slow growth in desirable areas, but we have fallen short on prevention

4.8% 4.8%

5.9%

2.9%

6.9%

2.5%

3.2%

4.6%

6.2%

2.8%

6.4%

3.5%

0.7% 0.9%

5.3%

0.2%

-1.5% -0.9%

1.0% 1.7% 1.6%

-1.7% -1.7%

1.7%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Inpatient care Outpatient care Long-term care Pharmaceuticals Prevention Administration

2007/08 2008/09 2009/10 2010/11

Source: OECD Health Statistics 2013

Average annual growth rates of spending for selected functions, OECD average, in real terms

Worthwhile processes are not being undertaken with consistency Distribution of French GPs: % of diabetic patients having 3 or more HBA1C

tests during the year in the last 12 months (2009)

Average=40% Target=65%

10 20 30 40 50 60 70 80 90

Considerable medical practice variations within and between countries

27

Note: Rates are standardised using OECD’s population structure. Missing country data will be added once available. Source: National reports submitted for the OECD project on Medical Practice Variations.

Rates of PTCA (standardised for age and sex) per 100,000 population, 2011 (or earliest

available)

Rates of Coronary Artery Bypass Grafting (standardised for age and sex) per 100,000

population, 2011 (or earliest available)

Presenter

Presentation Notes

Surgery after hip fracture was chosen for this international study with the intent to act as a reference procedure, since regional variations should be minimal and likely to reflect the incidence of hip fractures as there is little uncertainty about the diagnosis and clear evidence relating to benefits. The use of this indicator as one of low variation has been recognised in previous research (Bevan et al, 2004; Birkmeyer et al., 1998; Ibanez et al., 2009). In countries participating to the study, crude rates of admissions or surgeries after hip fracture range from 91 per 100 000 in Belgium to 177 per 100 000 in Switzerland. Age-and–sex standardisation of rates does not change countries’ ranking but slightly decreases the variation across countries (see Figure 2). This procedure had the lowest of all within-country variations observed in Finland, France, Germany, Italy, England, and the Netherlands, and was in the middle range for Belgium, Spain, and Switzerland, and high for Australia. Figure 3 shows rates of surgery (admissions) after hip for each region in all countries, age/sex standardised using the OECD-wide population. France stands out as have a relatively low dispersion – and indeed the co-efficient of variation is smallest of the countries included. Variation is also low in Finland and Italy. Several countries reported the number of admissions after hip fracture, assumed to be a good proxy of the surgery after hip fracture, which is more difficult to capture in their databases.

• Today: Where health care spending challenges a government’s ability to finance desired expenditure and service debt obligations.

• Long term: Holding other forms of spending constant, long term debt financing of health is undesirable – Assumptions about growth, interest rates,

potential tax increases come into play • Policies: Crowd out other areas, increase taxes,

improve productivity of health spending. 28

Fiscal sustainability of…health?

Presenter

Presentation Notes

How big do you want government to be? How much are people willing to pay for additional health services delivered under current structures?

WHAT IS THE ‘FISCAL SUSTAINABILITY’ OF HEALTH?

3rd Annual Meeting of the Joint Network on Fiscal Sustainability of Health Systems 24 April 2014 Ankit Kumar OECD Secretariat

delsa/gov health - session 1 - ankit kumar - oecd

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