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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.

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The Economics of Public Healthcare Reform in Advanced and Emerging Economies

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Page 1: Ben Clements, Fiscal Affairs Department, IMF

1

The Economics of Public Health Care Reform in Advanced and

Emerging Economies

Benedict ClementsFiscal 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.

Page 2: Ben Clements, Fiscal Affairs Department, IMF

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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

Page 3: Ben Clements, Fiscal Affairs Department, IMF

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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

Outline

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I. The fiscal context of health

care reform

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I. Debt ratios remain at historic levels in advanced economies---providing little room to accommodate higher spending on health

Public Debt, percent of GDP

World War II

Great Recession

Advanced

Emerging

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II. Trends and outlook of public health spending

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Private

Public

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

Periods of Acceleration

Health spending in 27 advanced economies (percent of GDP)

Page 8: Ben Clements, Fiscal Affairs Department, IMF

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Public

II. Increases in public health spending were much smaller in emerging economies

Health spending in 23 emerging economies (percent of GDP)

Page 9: Ben Clements, Fiscal Affairs Department, IMF

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II. Higher health expenditure, however, does not necessarily lead to better health outcomes

Australia

Belgium

Canada

Czech Republic

DenmarkFinland

France

Germany

Iceland

Ireland

Italy

Japan

Korea

LuxembourgNetherlandsNorway

Portugal

Slovakia

Slovenia

SpainSweden

Switzerland

United Kingdom United States

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7 8 9 10 11 12 13 14 15 16 17 18

Lif

e e

xpe

cta

ncy

at b

irth

Total health expenditure as a percent of GDP (2010)

Advanced Economies

Page 10: Ben Clements, Fiscal Affairs Department, IMF

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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

II. Main drivers of public health spending

Page 11: Ben Clements, Fiscal Affairs Department, IMF

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II. Public spending pressures in advanced countries are substantial

USALUX

CHEPRT

GBRAUT

KORGRC IS

LNZL

NEDFIN

AUSBEL

CANNOR

ESPFRA

SLKJP

NDEU

DENSLV

IRL

ITA

CZESW

E0

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6Aging

Excess cost growth

Weighted average=3.0

Unweighted average=2.2

Projected increases in public health spending (percent of GDP), 2011-2030

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II. Excess cost growth accounts for most of the increases in public health spending in advanced Europe and the US

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9United States

IMF advanced EU estimate

European Commission advanced EU estimate 2012

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POLHUN

BRACHL

ARG LITBGR

TURROM

UKRTHA

RUSZAF

ESTMEX

SAULVA

CHNMYS

IDN

PHLIN

DPAK

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Aging

Excess cost growth

Weighted average=1.0

Unweighted average=1.1

II. Projected increases lower for emerging economies

Projected increases in public health spending (percent of GDP), 2011-2030

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III. Health care reform in advanced economies

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Case studies

Event analysis

Econometric analysis linking indicators of health care systems and excess cost growth (ECG)

III. Three Methodologies

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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

III. Our results suggest five viable options to contain public health spending growth

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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)

III. Our results suggest five viable options to contain public health spending growth …

Page 18: Ben Clements, Fiscal Affairs Department, IMF

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III. …which have the potential to contain projected increases in public spending …

Compe

tition

and

choi

ce

Contra

cting

and

pub

lic m

anag

emen

t

Budge

t cap

s

Deman

d sid

e

Suppl

y con

strai

nts

0.0

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0.2

0.3

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0.49

0.37

0.26

0.080.05

Average Reform Impacts on Public Health Spending (percent of GDP), 2030(Decrease Relative to Benchmark Projections)

Page 19: Ben Clements, Fiscal Affairs Department, IMF

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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

III. … but subject to some caveats

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Price controls

Deregulation of insurers

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

III. Some reforms don’t work in containing spending growth

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For countries that rely more heavily on competition and choice:

III. Reform options depend on country characteristics and projected growth

Low Excess Cost Growth (0-0.6): Canada, Czech Republic, France, Germany, Japan, and Slovakia

Staying the course with marginal reforms

Moderate Excess Cost Growth (0.6-1.0): Australia, Austria, Belgium, and Netherlands

Tightening budget constraintsStrengthening gate-keeping Increasing cost-sharing

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III. Reform options depend on country characteristics and projected growth

High Excess Cost Growth (greater than 1.0): Greece, Korea, Luxembourg, Switzerland, and United States

Tightening budget constraintsIncreasing central oversightStrengthening regulations of the

workforce and equipment Strengthening gate-keeping

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For countries that rely more heavily on public insurance and provision:

III. Reform options depend on country characteristics and projected growth

Low Excess Cost Growth (0-0.6): Denmark, Ireland, Italy, and Sweden

Enhancing efficiencyTightening budget capsImproving priority setting

Moderate Excess Cost Growth (0.6-1.0): Norway and Spain

Tightening macro-controls (including increasing central oversight)

Broadening insurance for over-the-basic health care (increasing the share of health expenditures financed out of private insurance)

Improving priority setting

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III. Reform options depend on country characteristics and projected growth

High Excess Cost Growth (Greater than 1.0): Iceland, Finland, Portugal, New Zealand, and the United Kingdom

Strengthening supply constraints on workforce and equipment

Extending the role of private health insurance for over-the-basic health care

Increasing choice among providers

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Improved health information technology (HIT) could help improve efficiency

Greater emphasis on primary and preventive care could also contribute to expenditure containment

III. Potential reforms not included in the analysis

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IV. Health care reform in emerging

economies

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IV. Emerging economies lag behind in health outcomes and coverage

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(% of GDP)Out-Of-Pocket

Private Insurance

Public Insurance

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Infant Mortality

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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

IV. Reform challenges differ between emerging Europe and emerging Latin America and Asia

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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

IV. Emerging economies should learn from the experiences of advanced economies

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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

IV. A single payer system has several advantages

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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

IV. Health reform in emerging Europe

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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

IV. Health reform in emerging Latin America and Asia

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V. Summary

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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

V. Summary

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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

V. Summary