Division of Health Systems & Public Health

Fiscal sustainability and

sustainable public financing for health

Dr Tamás Evetovits

Sr Health Financing Specialist & Head of Office a.i.

WHO Barcelona Office

OECD meeting of the Joint Network on Fiscal

Sustainability of Health Systems, 24-25 April 2014

Let’s get the concept and the objectives right

Reality check on health spending and its fiscal impact

Sustainable public financing for health

Outline

An accounting exercise or

a matter of choice in public policy priorities and finding the right

instruments to minimize adverse effects on health, equity and

financial protection?

Fiscal sustainability of health systems

Fiscal sustainability is meaningless if not

linked to public policy objectives

• Fiscal sustainability should not be seen as a policy objective worth pursuing for its own sake…

• …if it was an objective, then a simple cost cutting exercise would do the job…

• … and both equity and efficiency would suffer

• Fiscal sustainability should be treated as a constraint that has to be respected by all sectors of public financing

• Continual increase of government debt is bad policy and not in the interest of future generations…

• …because both equity and efficiency would suffer

Fiscal sustainability: a slippery concept

• It applies at the level of overall public spending (overall fiscal balance)

• At a sectoral (e.g. health) level, the concept is less clear

– How much gets spent depends on a country’s overall fiscal context and the priority that government gives to each sector in its budget

– So the impact of the health sector on “fiscal sustainability” depends in part on choice

There is nothing wrong with health

expenditure growing faster than GDP

As long as…

• other sectors are not growing that fast

(no fiscal imbalance)

• spending is efficient (welfare enhancing)

• people prefer to spend the additional

wealth on health (THEY DO!)

Health is the top priority for more public spending

across Europe

02

04

06

0

% o

f po

pu

lation

su

pp

ort

Health Education Pensions Assisting poor Housing Infrastructure Environment

First priority Second priority

Source: Life in transition survey 2010, EBRD

Reality check on health

spending and its fiscal impact

Health spending increased, but did not carve out an unfair

share of growing public spending in the previous decade

Source: WHO NHA database, 2012

12.9% 12.1%

And this relative increase has faded

away in the past 10 years (2003-2012)

12.5% 12.7% 12.5% 12.7% 12.5% 12.7%

12.5% 12.7%

Source: WHO, 2014

While health has been taking a greater share of public

spending in high income countries pre-crisis, it is not the case

in less developed countries of the WHO European Region

Source: WHO NHA database, 2012

14.4% 13.7%

The health sector is certainly not a threat to

fiscal sustainability in Hungary…

…or in Malta where health just started

to catch up

...widening gap between health and non-

health public spending in Luxembourg

...in some countries it is clearly not health

but other sectors that grow faster than GDP

France cannot decide between health and

non-health spending: clearly not sustainable

The Irish decision is pretty clear

Sustainable public financing for

health: why and how?

Insurance function and public financing

• Let’s not forget the primary reason why health

is a big ticket item on the public budget

• Public financing achieves better financial

protection and equity in access to care i.e.

health insurance according to need and not

according to ability to pay

• User charges do not provide financial risk

protection…or equity… and not even

efficiency or cost control

Public spending is growing only in high income

countries: closing the gap in a generation?

0

2

4

6

8

10

12

14

He

alth

exp

en

dit

ure

%G

DP

public private

Private (mostly out-of-pocket) spending is high and

growing: bad for health, inefficient and inequitable

0 2 4 6 8 10 12

Low & Lower-Middleincome

Upper-Middle income

High income

Source: WHO NHA database, 2010

Unmet need in the poorest quintile

Source: EU SILC

0

5

10

15

20

25

30

2007 2008 2009 2010 2011

% o

f p

op

ula

tio

nin

(p

oo

rest

qu

inti

le) Latvia

Romania

Italy

Greece

Iceland

EU (27countries)Hungary

Belgium

Spain

How much inequity is “sustainable” in Latvia?

In contrast, counter-cyclical public spending at

work in Lithuania

23

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

planas

2013 m.

projektas

Total amount of contributions of economically active population, million LTL

Total amount of contributions and aditional allocations of national budget, million LTL

mln

. L

t

Source: G. Kacevicius

Avoiding unproductive cost escalation is our joint

responsibility: some good options

Reduce variation, inappropriate utilization of services through supply side measures

Improve rational drug use and price control. Careful with new drugs of marginal benefits

Allocate more to primary and outpatient specialist care at the expense of hospitals

Invest in infrastructure (including IT) that is less costly to operate

Avoiding unproductive cost escalation is our joint

responsibility: some bad options

Shifting costs to patients

Under-providing health services

Spending less on cost-effective services by cutting across the board

Leaving it to the doctors to decide and pay them fee-for-service

In summary

Health is highly valued by population:

spending above GDP growth can be justified

Public spending on health needs to grow

in low and middle income countries

Unproductive cost escalation should be avoided, but cutting spending ≠ efficiency

Shifting the burden to patients is a poor

alternative to many other options