Technological Advances, Public Health Spending Increases, and Health Care Reforms

in the Advanced Economies

Carlo Cottarelli Fiscal Affairs Department

International Monetary Fund

Health Care Innovation in a Time of Fiscal Austerity November 2, 2011

1

Objectives of presentation

Examine trends in public health spending over the past 40 years

Project country-specific public health spending pressures for advanced economies

Identify reform options in advanced economies that can help contain public spending increases efficiently and equitably

2

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

Perc

ent o

f GDP

(PPP

wei

ghte

d)

Private

Public

Health Spending in 27 Advanced Countries, 1970-2008

Led by public sector, large spending increases in advanced economies over past 40 years

3

Periods of Acceleration

Increases have varied considerably across countries

4

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Un

ited

Stat

es

Port

ugal

Kore

a

New

Zeal

and

Gree

ce

Unite

d Ki

ngdo

m

Icel

and

Fran

ce

Cana

da

Finl

and

Neth

erla

nds

Aust

ria

Luxe

mbo

urg

Aust

ralia

Japa

n

Spai

n

Germ

any

Norw

ay

Denm

ark

Irela

nd

Swed

en

Perc

ent o

f GDP

Selected Advanced Economies, 1980-2008

Non-demographic factors are the main drivers of health spending

Population aging explains about one fourth of the increase in spending-to-GDP ratios

Excess Cost Growth (ECG) — the difference between real health expenditure growth and real GDP growth— explains the rest

– Rising income

– Technological advances

– Baumol effect

– Health policies and institutions

Large inefficiencies in public health spending

5

Public spending pressures in advanced countries are substantial and vary

0

1

2

3

4

5

6

Per

cent

of G

DP

Projected Increases in Public Health Spending, 2011-2030Aging

Excess cost growth

Weighted average=3.0

Unweighted average=2.2

6

3 percentage points of GDP or more in 7 European countries

Spending projections reflect past trends

0

1

2

3

4

5

6

7

8

9

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

United StatesIMF advanced EU estimateEC advanced EU estimate (reference scenario 2009)

ECG=0.7

ECG=0.2

ECG=1.8

7

Reform experience points to five major policy options…

Budget caps (Italy, Japan, and Sweden)

Gate-keeping, case-based payment (Germany and

Italy), and greater sub-national government involvement (Canada and Sweden) – grouped under contracting and public management

8

Reform experience points to five major policy options…

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)

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.......which have the potential to contain projected increase in public spending

10

0.49

0.37

0.26

0.080.05

0.0

0.1

0.2

0.3

0.4

0.5

0.6

Competition and choice

Contracting and public

management

Budget caps Demand side Supply constraints

Per

cent

of G

DP

Average Reform Impacts on Public Health Spending, 2030(Decrease Relative to Benchmark Projections

Some reforms don’t work

Price controls

Deregulation of insurers

Greater availability of information on the quality and price of health services to patients

11

Potential reforms not included in the analysis

Greater emphasis on preventive care could also contribute to expenditure containment

Improved health information technology (HIT) could help improve efficiency

12

Savings may not be large enough to avoid sizeable

spending increases in some countries

Therefore, deeper health reforms or cuts in other spending may be required to support required fiscal adjustment

Simulated reform impacts need to be interpreted with caution

13

Thank you!

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