The Economics of Public Healthcare Reform in Advanced and Emerging Economies

1. The Economics of Public Health Care Reform
in Advanced and Emerging Economies
Benedict Clements
Fiscal Affairs Department, IMF
March 2013
This presentation represents the views of the author and should not be attributed to the IMF, its Executive Board, or its management.
1

2. This presentation is based on the book, The Economics of
Public Health Care Reform in Advanced and Emerging Economies,
which draws on contributions from leading scholars in health
economics from both advanced and emerging economies
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3. Outline
I. Fiscal context of health care reform
II. Trends and outlook for public health spending
III. Health care reform in advanced economies
IV. Health care reform in emerging economies
V. Summary
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4. I. The fiscal
context of health
care reform
4

5. I. Debt ratios remain at historic levels in advanced economies---
providing little room to accommodate higher spending on health
Public Debt, percent of GDP
140
Great
120 Recession
World War II
100
80
Advanced
60
40
20
Emerging
0
1950
1880
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
5

6. II. Trends and
outlook of public
health spending
6

7. II. Led by public sector, large spending increases in advanced
economies over past 40 years
Health spending in 27 advanced economies (percent of GDP)
14
12
Periods of Acceleration
10
Private
8
6
Public
4
2
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
7

8. II. Increases in public health spending were much smaller in
emerging economies
Health spending in 23 emerging economies (percent of GDP)
6
5
4
Private
3
2
Public
1
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
8

9. II. Higher health expenditure, however, does not necessarily lead
to better health outcomes
84 Advanced Economies
Japan
Iceland
82 Australia Italy Switzerland
Spain
Luxembourg Sweden Canada
Life expectancy at birth
Norway Netherlands
France
Ireland Belgium
80 Korea Germany
Finland United Kingdom United States
Denmark
Slovenia Portugal
78
Czech Republic
76
Slovakia
74
7 8 9 10 11 12 13 14 15 16 17 18
Total health expenditure as a percent of GDP (2010)
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10. II. Main drivers of public 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
 Technology
 Health policies and institutions
 Other factors
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11. II. Public spending pressures in advanced countries are
substantial
Projected increases in public health spending (percent of GDP), 2011-2030
6
Aging
Excess cost growth
5 Weighted average=3.0
Unweighted average=2.2
4
3
2
1
0
11

12. II. Excess cost growth accounts for most of the increases in
public health spending in advanced Europe and the US
9
United States
8 IMF advanced EU estimate
European Commission advanced EU estimate 2012
7
6
5
4
3
2
1
0
2014
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2016
2018
2020
2022
2024
2026
2028
2030
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13. II. Projected increases lower for emerging economies
Projected increases in public health spending (percent of GDP), 2011-2030
2.5
Aging
Excess cost growth
2.0 Weighted average=1.0
Unweighted average=1.1
1.5
1.0
0.5
0.0
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14. III. Health care
reform in
advanced
economies
14

15. III. Three Methodologies
 Case studies
 Event analysis
 Econometric analysis linking indicators of health care
systems and excess cost growth (ECG)
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16. III. Our results suggest five viable options to contain public health
spending growth
 Budget caps (Italy, Sweden)
 Greater sub-national government involvement
(Canada and Sweden), gate-keeping and case-
based payment (Germany and Italy) – grouped
under public management and coordination
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17. III. Our results suggest five viable options to contain public health
spending growth …
 Competition and choice (Germany)
 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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18. III. …which have the potential to contain projected increases in
public spending …
Average Reform Impacts on Public Health Spending (percent of GDP), 2030
0.6
(Decrease Relative to Benchmark Projections)
0.49
0.5
0.4 0.37
0.3
0.26
0.2
0.1 0.08
0.05
0.0
Competition and Contracting and Budget caps Demand side Supply constraints
choice public management
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19. III. … but subject to some caveats
 Simulated reform impacts need to be interpreted with
caution
 Savings may not be large enough to avoid sizeable
increases in spending some countries
 Therefore, deeper health reforms or cuts in other
spending may be required to support required fiscal
adjustment
 Reforms should ensure that health outcomes and
access to care by the poor are not adversely affected
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20. III. Some reforms don’t work in containing spending growth
 Price controls
 Deregulation of insurers
 Greater availability of information on the quality
and price of health services to patients
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21. III. Reform options depend on country characteristics and
projected growth
For countries that rely more heavily on competition and
choice:
Low Excess Cost Staying the course with marginal
Growth (0-0.6): reforms
Canada, Czech
Republic, France,
Germany, Japan,
and Slovakia
Moderate Excess Tightening budget constraints
Cost Growth (0.6- Strengthening gate-keeping
1.0): Australia, Increasing cost-sharing
Austria, Belgium,
and Netherlands
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22. III. Reform options depend on country characteristics and
projected growth
High Excess Cost Tightening budget constraints
Growth (greater Increasing central oversight
than 1.0): Greece, Strengthening regulations of the
Korea, workforce and equipment
Luxembourg, Strengthening gate-keeping
Switzerland, and
United States
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23. III. Reform options depend on country characteristics and
projected growth
For countries that rely more heavily on public insurance
and provision:
Low Excess Cost Enhancing efficiency
Growth (0-0.6): Tightening budget caps
Denmark, Ireland, Improving priority setting
Italy, and Sweden
Moderate Excess Tightening macro-controls (including
Cost Growth (0.6- increasing central oversight)
1.0): Norway and Broadening insurance for over-the-
Spain basic health care (increasing the
share of health expenditures
financed out of private
insurance)
Improving priority setting
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24. III. Reform options depend on country characteristics and
projected growth
High Excess Cost Strengthening supply constraints on
Growth (Greater workforce and equipment
than 1.0): Iceland, Extending the role of private health
Finland, Portugal, insurance for over-the-basic
New Zealand, health care
and the United Increasing choice among providers
Kingdom
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25. III. Potential reforms not included in the analysis
 Improved health information technology (HIT)
could help improve efficiency
 Greater emphasis on primary and preventive
care could also contribute to expenditure
containment
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26. IV. Health care
reform in
emerging
economies
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27. IV. Emerging economies lag behind in health outcomes and
coverage
(% of GDP)
Out-Of-Pocket
85 Life Expectancy 35 10 Private Insurance
Infant Mortality 9
30 Public Insurance
80 8
25 7
6
75
20 5
4
15
70 3
10 2
65 1
5 0
Advanced Emerging Emerging Other
60 0 Europe Latin emerging
Advanced Emerging Emerging Other America
Europe Latin emerging
America
27

28. IV. Reform challenges differ between emerging Europe and
emerging Latin America and Asia
 In emerging Europe, coverage is almost complete;
disease patterns mirror those in advanced economies;
fiscal space is limited; must focus on efficiency-
enhancing reforms
 In emerging Latin America and emerging Asia, disease
patterns are transitioning from CDs to NCDs; these
countries have greater fiscal space and need to expand
coverage in a fiscally sustainable manner
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29. IV. Emerging economies should learn from the experiences of
advanced economies
 Cost containment is one of the biggest challenges
following a successful coverage expansion (Korea,
Taiwan Province of China)
 The private sector can play an important role
 Improving efficiency is the key to long-term system
performance
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30. IV. A single payer system has several advantages
This is suggested by reform experiences in both advanced and
emerging economies (Estonia, Korea, Taiwan Province of China)
 It allows for more extensive risk pooling, and can help
improve efficiency and control cost
 It provides a better platform to achieve equity
 It can also perform well in terms of promoting choice
when combined with private provision
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31. IV. Health reform in emerging Europe
 Many countries have successfully contained spending
through reforms (Estonia, Hungary, Latvia, Russia and
Ukraine)
 There is scope for additional micro-level reforms to
improve efficiency
 Promoting healthy behaviors is also important
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32. IV. Health reform in emerging Latin America and Asia
 Benefit packages should be restricted to most essential
services as coverage expands (China, India and
Mexico)
 Expansion should be tax-financed if labor market
informality is high
 Improvements in the composition of spending can lead
to better health outcomes without incurring additional
costs
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33. V. Summary
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34. V. Summary
For advanced economies:
 Fiscal adjustment needs are large and the projected
increases in health spending account for a large
share
 Health reforms can help contain projected spending
increases
 The most effective strategy involves a mix of macro-
level controls and micro-level reforms to improve
spending efficiency
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35. V. Summary
For emerging economies:
 Fiscal adjustments needs are less pressing, but
some economies are vulnerable
 Efficiency-enhancing reforms should be a priority,
especially for emerging Europe
 Coverage expansion in emerging Latin America and
Asia should not jeopardize fiscal sustainability
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36. Available at IMF Bookstore and Amazon.com
There is also an accompanying video
Thank you!
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