Tuesday, September 29, 2015

qotd: OECD: Fiscal sustainability of health systems

September 2015
Fiscal Sustainability of Health Systems
Bridging Health and Finance Perspectives

From the Forward

This book provides a synthesis of the work developed by the OECD Senior
Budget and Health Officials Joint Network. Over the past four years,
this joint network has been an important forum to promote the dialogue
and mutual comprehension between Health and Finance Ministries. It has
provided a platform for budget and health officials to discuss together
possible solutions to fiscal sustainability challenges in health care.
It describes a wide range of responses by countries to the crisis - some
clearly beneficial, achieving better value for money, others less so,
reducing services across-the-board and potentially leading to poorer
health outcomes and financial hardship from increasing costs borne by
patients. This book presents a strong case for timely reforms of health
care systems, based on close collaboration between budget and health

From Chapter 1: Fiscal sustainability of health systems - Why is it an
issue, what can be done?

The main messages from this chapter are summarised below:

* Fiscal sustainability requires governments to mange public finances
credibly. Health systems are a key challenge to fiscal sustainability,
since rising costs, new treatment possibilities and demand for continued
improvements to the quality of care will exert pressure on public finances.

* Health expenditure has typically outpaced economies growth. Whilst
the global economic crisis moderated rapid growth in health spending,
this is expected to be temporary. Indeed, projections forecast health
expenditures to rise as a share of GDP.

* Spending on health has been largely driven by new technologies and
rising incomes, with demographic change and institutional
characteristics of health systems relevant but less important factors in
most countries.

* The implications of rising costs are particularly important for
public finances, since health care is predominantly funded from public
sources. Moreover, aging may lead to shortfalls in payroll taxes to
finance health.

* Policy makers have three broad ways to ensure fiscal sustainability
of health systems: raise more money for health, improve the efficiency
of government health spending, and reassess the boundaries between
public and private spending. Simpler blanket spending cuts can also
evidently address fiscal constraints, but are more likely to have
adverse effects.

* Health care is highly valued by populations and is a major
contributor to countries' economies. Therefore spending more on health
care is not automatically a problem, particularly if citizens are
willing to pay for this through higher taxes or cuts in other areas of
government spending. The challenge is to ensure any increase in spending
respects fiscal sustainability constraints, and delivers good value for

Do not reduce population coverage, avoid across-the-board increases in
cost sharing

Looking first at population coverage, leaving certain population groups
to be voluntarily covered by private health insurance appears to be a
logical policy option from a fiscal perspective. Indeed, the theoretical
advantages of private health insurance are an expansion of individual
choice, greater innovation and flexibility, as well as reduced public
cost pressures. However, in practice the risks associated with private
health insurance are numerous, including higher administrative costs,
less bargaining power for insurers, pressure for tax incentives, and
risk selection leading to inequitable coverage gaps.

Given these issues, and coupled with strong social justice arguments,
universality of population coverage should be maintained. In terms of
cost coverage, blanket increases in cost-sharing and other forms of
out-of-pocket payments is also undesirable, since they can deter
health-seeking behaviour and can lead to people facing financial
hardship. Small, targeted co-payments that include exemptions could be
considered, but are unlikely to generate substantial revenues.

From the Conclusion of Chapter 1

Finally, it is also important to remember that more health spending is
not automatically a problem. Good health remains a critical part of
human development and an important contributor to economic growth.
Health care is also highly valued by society. Accommodating greater
health spending as a share of government budgets is therefore not
automatically a problem. The challenge is to ensure that any increase in
spending respects fiscal sustainability constraints, and that money is
effectively spent.

From Chapter 2: The challenge of budgeting for health care programmes

Meanings of "sustainability"

The United States currently spends a share of its GDP on health care
which would seem unthinkable and horrifying to policy makers in any
other country. It seems unnecessary and wasteful to many Americans. Yet
the US economy certainly has survived that level of spending. If the
United States can survive its much higher spending, why would that level
be "unsustainable" for other countries?

The most plausible way in which spending could be "unsustainable" would
be if political support for the expense could not be sustained.
Fundamentally, this means political support for redistribution. In all
modern economies, the average cost of medical care is now unaffordable
for a significant proportion of the population. All health care finance
systems accordingly redistribute not just from the healthy to the sick,
but from those with higher incomes to those with lower incomes. Systems
are funded roughly in proportion to ability to pay; if they are not,
then some people are likely to receive much less care. Therefore the
capacity to spend on health care for all citizens depends on the ability
to collect the necessary funds from the higher income strata within the

As the United States is an extreme case that suggests doubts about
economic unsustainability arguments, it provides the clearest evidence
of the political sustainability problem. The United States faces the
most extreme redistribution challenge both because spending is so high,
making costs less affordable for individuals, and because incomes are
especially unequal, making average costs even more daunting for the
lower-income groups. In the United States, limits on redistribution work
not to make national health insurance unsustainable, but to prevent its



Comment by Don McCanne

Because of ever-increasing health care costs, all nations are concerned
about the fiscal sustainability of their health care systems. The United
States has the highest costs - theoretically the least sustainable
system - thus this report should be useful for our policymakers since it
describes various approaches to sustainability by economically-developed
member nations of OECD, informing us on both beneficial and detrimental

This 264 page report is accessible, without charge, for reading - in
sections or in its entirety - at the link above. Be sure to keep the
link for future review or reference.

A major theme throughout this report is that sustainability is achieved
by close cooperation between Ministries of Health and Ministries of
Finance, that is, collaboration between government health and budget
officials. In one word: government.

Because of our high health care costs and our inordinate levels of
income inequality, we have a greater need for redistribution, yet,
compared to other economically-developed nations, our government
policies are relatively weak. As this report states, in the United
States, "limits on redistribution work not to make national health
insurance unsustainable, but to prevent its creation."

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