expenditure on health care in the eu

7/30/2019 Expenditure on Health Care in the EU

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knowledge by most clinicians, politi-cians, health care researchers, and lay-persons alike.The belief persists is spiteof a growing body of evidence in sup-port of a more complicated picture.Thebelief is apparently supported by cross-sectional data showing a relationship

between age and (rising) costs.Fuchs [6] was the first to point tothe fact that the relationship betweenage and health care utilization or costsis biased by the fact that the percentageof persons in their last year of life (whichcosts well above average) is increasingrapidly with age.He hypothesized that if mortality in all age groups above65 years were assumed to be constant,health care costs with age would also beconstant.

United States Medicare data sup-

port this assumption. In addition, how-ever, two further things complicate thepicture: (a) health care costs for personsin their last year of life reach a maxi-mum at about the age of 70 years and fallwith higher age,and (b) health care costsfor the group of survivors rise until theage of about 85 years, reach a maximumand fall with higher age [11]. The mar-ginal increase in lifetime costs associat-ed with an additional year of life de-creases as the age at death rises [10].However, Medicare data have severaldrawbacks, for example,that the systemof health care financing and provision inthe United States has many characteris-tics, including a complex set of incen-tives that limit its generalizability to Eu-rope. Meanwhile, however, a number of studies from other countries such asCanada [12,21], the Netherlands [23],Switzerland [26], and Germany [3] havedemonstrated that the conclusions aregenerally valid.

A model calculation with the Ger-man data showed that the number of days spent in hospital over the wholelife-span is directly proportional to thenumber of years lived, as the highernumbers of hospital days for (surviving)elderly persons are compensated by low-er numbers of hospital days in the lastyears of life (compared to younger de-ceased). Younger deceased do not only incur higher costs shortly before deathbut the peak in hospital days for personsin their last year of life is actually shift-ing to younger age groups [9,12].The da-ta may be a hint towards a compressionof morbiditywith rising life expectan-

cy [5] at least for morbidity leading tohospital treatment.An important caveatmust be mentioned: nursing care costsin the last year of life are rising with ageand this rise almost compensates fallinghospital care costs [12,22].

Not surprisingly, analyses of past

trends in health expenditure by OECD[15, 16, 17,18] reveal that ageing explainsonly a very small part of the total in-crease in health expenditure over the pe-riod 19601990.According to OECD, themost important factors driving healthexpenditure were: GDP/income growth,technological development, growth inmedical personnel and facilities,and in-creases in real health care prices. Thesefindings are supported by national stud-ies. For Sweden, Gerdtham showed thatchanges in population ageing accounted

for barely 13% of the total increase inhealth care expenditure during the peri-od 19701985 [7]. He pointed out, how-ever, that health care expenditure percapita in older age groups had risenmuch faster than for younger.

Economic growth

Many studies since the 1960s have exam-ined the relationship between GDP andhealth care expenditure. Most of themhave used a rather inadequate cross-sec-tional design, some other ones pooleddata (i.e., from several countries andseveral points in time), and only a few truly longitudinal designs (e.g., [8,13]).Most of them came to the conclusionthat health is a luxury goodwith an in-come elasticity greater than 1. Some of the studies with methodologically sounder designs came,however, to moremixed results, pointing to the fact that while GDP growth is closely related tohealth expenditure growth it may notbe the determining factor per se as itcannot explain the variations in healthexpenditure growth. On the other hand,Barros [1] demonstrated that acrossOECD countries GDP was the only fac-tor with a significant impact on healthexpenditure growth between 1960 and1990.

Health care resourcesand medical progress

The correlation between health carestructures (e.g.,numbers of beds or phy-sicians) or processes (e.g., length of stay)

and health care expenditure is weakerthan often believed.On the other hand,medical (or technological) progress isusually made responsible for a large if not major part of majority of the in-crease.Newhouse [14] presented a healthexpenditure growth analysis for the

United States in which he concluded thatabout 50% of the increase in costs couldnot be explained by traditional factorsand attributed it to progress.Barros[1]estimation was 30%. The construct of progress is, however,ill-defined and en-compasses a wide range from new tech-nologies/therapies via new indicationsfor existing technologies to changingpreferences.

The design of the health care system

In 1998 the EU countries with Bismarck-ian systems spent US$ 2139 in purchas-ing power parities (PPP) per capita or8.6% of their GDP (unweighted averag-es) on health care while those withother, mainly Beveridge systems spentUS$1520PPP (29% less) or 7.6% of GDP(12% less) [25]. In the World Health Re-port 2000, the former countries rank 3,4,5,6,9,and 15 in the world while the lat-ter systems are at number 7, 8, 11, 18, 24,25, 26, 28, and 30 in terms of health ex-penditure [24].While one can thereforeeasily conclude that the design of thesystem has a major impact on the level of health care spending,this is apparent-ly not true for differences in growth ratesas Barros [1] has shown.

The impact of what factorswill change in the future,and how will this affect futurehealth care expenditure?

The European population will age morerapidly. The population over 65 years isincreasing both as a percentage of thepopulation and in absolute numbers inall parts of Europe, with the increaseslikely to be particularly large in south-ern and western Europe.On average, theproportion of persons aged 65years andover in the 15 EU countries will increasefrom 15.4% in 1995 to 17.9% in 2010(from 57 million to 69 million,or +1.25%annually).The trend will accelerate sig-nificantly in the years after 2010, with+1.45% annual growth between 2010and 2025,when the size of the age group,with 85 million persons, will be 50%

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Original papers

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above the 1995 level (22% of total popu-lation). The group of persons aged 80and over will increase even more rapid-ly, i.e., by 36%, for the EU 15 between2000 and 2010,and close to 50% for sev-eral countries (Belgium,France, UnitedKingdom, Italy, Luxembourg), with fig-

ures below 10% only in Denmark andSweden. The number of persons withinthis age group will rise to 18.3 millionsin 2010 (almost + 5 million compared to1999) or 4.7% of population in 2010.

It has been pointed out also thatsuch demographic projections could beoverly conservative in their assumptionsabout life expectancy [20]. Some insur-ance companies have found out the hardway that underestimating life expectan-cy can systematically erode their profitsand hence have increased their estimates

of life expectancy accordingly. The Fu-tures Panel on Life Sciences also pointedout that a growing number of age-relat-ed pathologies (many forms of cancer,osteoporosis,Alzheimer) are in the pro-cess of being successfully tackled.Thesedevelopments will certainly push backthe frontiers of life in the next decadeand thus be a major factor in shaping thenature and scale of health-care expendi-ture.

Both ageing per se and new treat-ment options will have a significant im-pact on the health needs of the popula-tion and on the patterns of disease con-tributing to it. They are likely to in-crease, and certain to change, demandfor health services and to require chang-es to their organization and structure.With more persons living over 80 oreven 90 years, more people will needlong-term health care services and spe-cialized social services. The trends inhealth at advanced age have mixed con-sequences.On the one hand there is a re-duction in the cases of severe disability at advanced age.On the other,longer lifeexpectancy might also increase thenumber of moderate disabilities result-ing from the general ageing process.

Ageing poses a two-sided issue for financing the health care system givingrise to concerns about the financial su-stainability funding on one side andutilization/expenditure on the other.Theformer is of concern since the total de-pendency ratio (the ratio of dependantsto workers) will rise from its current lev-els, i.e., the share for funding the systemwill fall on fewer persons. Projections

about health care utilization and costsare more difficult.On the one hand,cur-rent per capita expenditure on healthcare increases with age,i.e., a larger pro-portion of aged persons would substan-tially increase health care costs if this re-lationship remains unchanged. On the

other hand, elderly persons are now healthier than they were previously, andthey will most likely be even healthier inthe future (that explains why they willlive even longer).At any given age,beinghealthier than the previous generationmight, however, very well decreasehealth care needs and consequently health care utilization or,at least,post-pone health care needs and utilization tohigher age, i.e., shift the cost-by-agecurve to the right.

Health services must also increas-

ingly respond to people's expectationsand concerns. The expectations of pa-tients regarding the range of treatmentsand quality of services available havealso increased in many European coun-tries. It determines that health care pro-fessionals face high pressures to adoptthe latest available medical techniques.

What is the expected futurespending for health care?

Some specific features of the health caresector make forecasting trends in healthexpenditure particularly difficult whencompared with other sectors of publicspending. The main reasons for this arethe following [4]:

q Health care system regulation anddecision making is very complex, in-volving a large number of differentand interacting agents: governmentbodies, insured/patients, third-party payers, and service providers.

q The quantity and type of servicesprovided is determined by the com-plex interaction of several differentsupply and demand factors. Mor-bidity rates,population structures,income levels, and behavioral andsocial factors influence demand .Thedemand for treatments is also sub-stantially influenced by decisionstaken by providers. Technology, thebehavior of providers, and the orga-nizational features of the system(e.g., regulations, insurance struc-ture, payment of providers) affectthe supply of health care.

q Most of these factors can changerapidly over time.

The OECD has estimated three differentscenarios for the development of healthcare costs relative to GDP growth,name-ly (a) by 1% less than real GDP growth,

(b) at the same rate as GDP growth, and(c) by 1% more than real GDP growth[19]. On the assumption that health ex-penditure profiles remain stable, andthat the relative cost of health care isconstant (i.e., scenario b), the share of health expenditure to GDP for the EU isprojected to increase by around 30% be-tween 1995 and 2030.When the accumu-lation of costs shortly before death werecalculated separately, the increaseamounted only to 10%, i.e., only onethird.This figure is line with the calcula-

tion of Breyer and Ulrich [2] who,usingthe data of Busse et al.[3],estimated thatthe inclusion of the death effectreduc-es the increase due to ageing by 60%compared to using stable expenditureprofiles.According to their calculations,an increase in average life expectancy of 1 year will increase health expenditureby 1.3% (instead of +3.3%). Dependingon the further improvement in life ex-pectancy over the coming decades, thiswould add around 78% to the healthcare bill if trends remain stable. In the(highly unlikely) OECD scenario a, theratio of health expenditure to GDPwould decline by 20%. In the more real-istic scenario c (with stable health ex-penditure profiles), it would increase by more than 70%, i.e., at around the samespeed as between 1970 and 1998.

In summary, while ageing will in-crease health care costs modestly in thefuture, the other factors especially medical progress will continue to exerttheir impact on health care spending.Given all the uncertainties consideredabove, every prognosis is obviously doomed to be wrong. However,under a(probably conservative) estimate thathealth care expenditure will continue torise faster than GDP by 1 percentagepoint annually (=the average of the1980s and 1990s), it will increase from8.6% of GDP in the EU in 1998 to 9.7% in2010,10.7% in 2020 and 11.8% in 2030.If the increase were 1.5 percentage pointshigher, the respective values amount to10.3%,12.0% and 13.9%, i.e., reaching theUnited States expenditure level with adelay of 35 years.


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