Is the Funding of Public National Health Systems Sustainable over the Long Term? Evidence from Eight OECD Countries
| Published date | 01 March 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12341 |
| Author | Aris Angelis,Panos Kanavos,David Tordrup |
| Date | 01 March 2017 |
Is the Funding of Public National Health
Systems Sustainable over the Long Term?
Evidence from Eight OECD Countries
Aris Angelis, David Tordrup and Panos Kanavos
London School of Economics
Abstract
This study examines what impact macroeconomic and health-related factors have on the financial sustainability of health care
systems; provides insights on additional financial resources required in order for demand for health care to be met; and
reflects on needed reforms by health care systems in the near future. Publicly available data are used to identify the key vari-
ables influencing health spending. Statistical analysis is used to provide estimates of future required levels of health spending.
Average macroeconomic performance, high debt levels, the need to contain fiscal deficits combined with adverse demo-
graphic developments, high outlays on health technologies and competing public sector needs, suggest that a funding gap
between required and committed levels of health spending will exist in the next few years. This funding shortfall can be sig-
nificant and in cumulative terms may range between 39 per cent and 61 per cent of 2012 health expenditure levels over the
2013–2017 period. Health care decision makers will need to place emphasis on outcomes-based reimbursement, set priorities
based on efficiency rules, and implement organisational innovations in order to ensure affordability and sustainability. In the
opposite case, contraction of services offered and exclusions from coverage are not unlikely.
In recent decades, spending on publicly funded health sys-
tems has risen at a higher rate than overall economic
growth. From 1970 to the early 1980s, average public
spending as a proportion of gross domestic product (GDP)
increased by 50 per cent among member states of the
Organisation for Economic Co-operation and Development
(OECD). Even in countries that have been successful at con-
taining health expenditure, such as Sweden, GDP growth
was still outpaced by health expenditure growth by a factor
of 1.45 between 1970 and 2000, while the same figure for
the United States was 2.01.
In the absence of additional policy measures, health
spending in OECD countries was projected to increase from
an average of 5.7 per cent of GDP in 2005 to 9.6 per cent in
2050. Long term care costs are projected to treble from 1.1
per cent to 3.3 per cent of GDP over the same period (Mar-
tins and De la Maisonneuve, 2006). In the wake of one of
the most severe financial crises in recent history, where
many governments slashed public spending to reduce bud-
get deficits, resources for health and social care were also
affected (Stuckler et al., 2010) including countries such as
the USA, where health spending drives a significant propor-
tion of public debt (Chernew et al., 2010), but also more
generally in European countries facing significant fiscal,
external
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and other macroeconomic imbalances (Sinn, 2012).
Together these factors warrant a closer look at the drivers of
health care expenditure and the identification of policy
levers to mitigate uncontrolled growth in health spending
while preserving the core values of national health systems
including equity, universal coverage and intergenerational
solidarity.
Principles and priorities for health systems have in the
vast majority of cases featured effectiveness, cost-effective-
ness and necessity, but the issue of financial sustainability
has not been addressed (Kenny and Joffres, 2008), possibly
because the combination of an ageing baby-boom genera-
tion and continuing innovation in health care technology
only now poses the unprecedented challenge of having to
provide more services for less available resource. It has nev-
ertheless come to the fore in recent years because of the
financial crisis (Thomson et al., 2014).
The long-term financial sustainability of national health
systems now depends on the ability of decision makers to
balance the challenges of what seems to be a very arduous
environment: a higher proportion of elderly people relative
to those in working age, higher demand for health care
from an increasingly well-informed public, more expensive
technological innovations, and greater pressure on other
social care budgets (e.g. pensions, rising prices, less contrib-
utors to pay for everything and severe restrictions on the
ability of governments to run up deficits to plug funding
gaps).
In light of the above, the objective of this paper is three-
fold: first, to examine what impact certain macroeconomic
and health-related factors would have on the financial sus-
tainability of health care systems; second, based on current
levels of demand for health care and responding to financial
challenges, to provide insights as to the additional financial
Global Policy (2017) 8:Suppl.2 doi: 10.1111/1758-5899.12341 ©2016 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 8 . Supplement 2 . March 2017 7
Special Issue Article
resources that may be needed over the next few years in
order for such demand to be met and for health systems
not to register a funding gap; and, third, to reflect on the
evidence presented on the previous objectives and offer an
agenda for reform and action by health care decision
makers.
1. Methods and organisation of the paper
Data sources and definitions
In order to fulfil the paper’s objectives we use data from
publicly available sources. Such data include macroeconomic
indicators (e.g. fiscal deficit, gross/net debt, GDP, public pen-
sions), demographic indicators (e.g. life expectancy, share of
people over 65 in the total population), health and pharma-
ceutical related expenditures and utilisation. Original data
collection and analysis was conducted in 2012 and was
updated in 2014.
Data on fiscal deficit (‘General government net lending/
borrowing’), and gross/net debt (‘General government net/
gross debt’) were retrieved from the International Monetary
Fund (IMF) World Economic Outlook database (IMF, 2014b).
Data on GDP, public pensions, life expectancy, elderly popu-
lation, pharmaceutical expenditure and total health expendi-
ture were retrieved from the Organisation for Economic
Co-operation and Development (OECD) Statistics database
(OECD, 2014b). Old age support (dependency) ratio data,
including projections, were extracted from ‘Pensions at a
Glance 2013’(OECD, 2013). Pharmaceutical expenditure as a
percentage of total health expenditure (pharmaceutical and
other non-durables, percentage of current expenditure on
health) was retrieved from ‘OECD Health Data 2014’(OECD,
2014a). For comparability, national currency units (NCUs)
were converted to euros (€) using average annual exchange
rates from the IMF International Financial Statistics database
(IMF, 2014a).
Health care expenditure is classified according to the Sys-
tem of Health Accounts (OECD, 2014b; OECD, 2015; OECD/
EUROSTAT/WHO, 2011). The ‘Total health expenditure’cate-
gory includes: financing agents, functions (e.g. curative care,
long-term care, preventive care, among others), providers,
and financing sources. Gross Domestic Product (GDP, Output
Approach) and all expenditure categories when expressed in
national currency units (NCUs) were deflated using the
World Bank year-on-year GDP deflator using as a base year
1990 (WorldBank, 2014). Old age support ratio (dependency
ratio) is defined as the number of population aged 20–64
years old divided by the number of population 65 or older
(OECD, 2014b).
Countries included in the analysis were selected to repre-
sent a sample of predominantly tax (UK, Spain, Poland),
social health insurance (France, Germany) and mixed (Aus-
tralia, Canada, Italy) health care systems (Table 1).
Objectives, assumptions and projections
The first objective of the paper is to examine the extent to
which certain exogenous and endogenous factors impact on
the financial sustainability of health care systems in the
study countries. This was done by examining a number of
contributions from the literature. In doing so, the following
section of the paper examines the importance of demo-
graphic developments, the need for public pension reform,
the impact of ageing, the rising impact of long-term care
arrangements, the impact of technological development and
the responses by many health care systems in terms of cost
containment measures and efforts to improve efficiency in
the provision of services.
The second objective of the paper is to provide insights
as to the additional financial resources that may be needed
over the next few years in order for such demand to be
met and for health systems not to register a funding gap.
We proceed by identifying key exogenous factors (acting
independently of the health care system but may still have
a major influence on system performance and sustainability,
for example key macroeconomic variables) and endogenous
factors (those influencing expenditure directly). We subse-
quently examine current and earlier trends over the 1980–
2012 period to assess how their performance over time and
in light of recent developments is likely to influence the
direction of demand for health care and the ability of
Table 1. Overview of health system financing mechanisms in the eight OECD study countries
Country Health system financing (payer) Health service provision Private health insurance
Australia Public (general taxation +health tax) Public and private Voluntary
Canada Public (general taxation) Public and private Voluntary
France Social health insurance (statutory) and public
(general +health tax)
Public and private Voluntary
Germany Social health insurance (statutory) and public
(general taxation)
Public and private Voluntary (some substitutive)
Italy Hybrid of social health insurance and public Public and private Voluntary (some substitutive)
Poland Public (health tax +general taxation) Public and private Voluntary (limited scope)
Spain Public (general taxation +national insurance) Predominantly public Voluntary
United Kingdom Public (general taxation) Public and private Voluntary
Sources: Australia (HiT, 2006); Canada (HiT, 2013); France (HiT, 2015); Germany (HiT, 2014a); Italy (HiT, 2014b); Poland (HiT, 2011a); Spain
(HiT, 2010); UK (HiT, 2011b).
©2016 University of Durham and John Wiley & Sons, Ltd. Global Policy (2017) 8:Suppl.2
Aris Angelis, David Tordrup and Panos Kanavos
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