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Investing in health

European Observatory on Health Care SystemsLSHTM

Martin McKee

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My challenge

“The cost of welfare states in Europe is spiralling out of control. We see two possibilities: Europe can dismantle its welfare states or erect trade barriers against the US. Which scenario do you think will happen?”

Question asked by Ripon Educational Foundation, November 2000

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Health care expenditure out of control?

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1980 1983 1986 1989 1992 1995 1998 2001

% G

DP

spen

t on

heal

th

USA

FranceGermany

NetherlandsUK

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Cost containment in Germany

A reform of health care financing, agreed in July 2003, aims to:

•Reduce benefits;•Increase cost sharing;•Reduce costs by €9.9 billion in 2004 (€5.8 billion through increases in health insurance premiums for employees and co-payments for doctors' visits).•Reduce costs by €23 billion by 2007.

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… and in The Netherlands

"We can only solve the problem of rising costs by increasing the own responsibility to patients, clients, and care professionals substantially." Hans Hoogervorst, Dutch Health Minister

"Only those in the private sector, who are not sick and have healthy children will have a lucky escape" Volksrant 17 Sept 2003

"Things are going to get very tough in the Netherlands, if this cabinet has its way. The cutbacks in social welfare and public health do not deserve support.” Algemeen Dagblad 17 Sept 2003

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0 10000 20000 30000 40000GDP US$

% G

DP

spe

nt o

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alth

The orthodox view:Health care expenditure inevitably rises as countries get wealthier

OECD countries:1990 data

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… and what difference does health care make anyway?

Thomas McKeown. The role of medicine

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The relationship between national wealth and health care expenditure

Numerous studies, dating back to Abel-Smith in 1963, have found that GDP is a major determinant of health expenditure, with income elasticities ~ 1.1-1.7.If health care is a luxury good then “health care at the margin may contribute little to physiological health, for developed countries at least” (Cullis & West, 1979)… implying policy goal should be to reduce growth in expenditure.

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… but the relationship seems to change over time

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0 10000 20000 30000 40000 50000GDP US$

% G

DP

spe

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alth

19902000

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… and health care does not seem to be a luxury good within countries

0.810 Canadian provinces 1965-91

Di Matteo

0.950 US States, 1966-78Levit

0.933 US States, 1966Fuchs & Kramer

0.547 US States. 1958-67Feldstein et al.

Income elasticity

SettingAuthors

… and household surveys in developing countries also consistently find income elasticities < 1

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… and it depends on how you design the model

Double log

Exponential

Semi-log

Linear

Model form

1.00

1.12

0.8

0.9

PPP conversions

1.19

1.57

0.8

1.12

Exchange rate conversions

Data from 18 OECD countries for 1980

Source: Parkin at al.

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Increasingly sophisticated models …

Multivariate analyses– Proportion of persons under 15 and over 65

Do youth and elderly use more services?– % urbanisation

Risk of contagion higher and access easier in cities– Dummies for countries

NHS in UK, direct democracy in Switzerland– Share of expenditure for inpatient care– Number of practicing physicians/ capita– % unemployment

Results contradictory and often counter-intuitive

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Growing sophistication: incorporating risk factors

Tobacco consumption– But no appreciation of lag

periods between taking up smoking and disease

– Decline in lung cancer in Russia in 1990s attributable to reduction in consumer goods in 1945-53

– Stalin, not Yeltsin can take credit for falling death rate

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… and speaking of lag periods

If public choice theory applies, then GDP growth should lead changes in health care expenditureyet all published studies regress GDP and health care expenditure in same yearand anticipation of boom or recession may influence consumption choices

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… incorporating health

Life expectancy– But no contributory factors vary between

countries and over time– Different combinations of causes will have

different implications for health careInfant mortality– But no appreciation of differing trends in neonatal

and post-neonatal mortality

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But can we measure health expenditure?

Differences in system boundaries– Prison/ armed forces health care– Social/ nursing care– Health R&D– Collective public health services (e.g.

environmental health)Handling of capital investment– Payment up front or public-private partnership

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Comparing currencies (I)

The limitations of exchange rates

– Even with completely free trade, exchange rates only reflect prices of internationally traded goods.

– Many inputs into health care (in particular staff) are only to a small extent traded internationally.

– Exchange rates have often been “distorted” in pursuit of fiscal policies

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Comparing currencies (II)

The limitations of purchasing power parities

– GDP PPPs only recalculated every 5 years

– GDP PPP does not necessarily reflect differences in health inputs

– Health PPPs228 of 294 items in OECD list are pharmaceuticals800 of 875 items in EUROSTAT list are pharmaceuticalsEUROSTAT list has five items related to dentists but only two to physicians

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So much for health expenditure: What about GDP?

Differences in scope of monetarised transactions– Family-provided vs purchased services

Differences in extent of data capture– Variable coverage by business registers– Differing scale of informal economies

GDP takes no account of depletion of accumulated resourcesGDP loosely reflects income, yet wealth may be as important in determining consumption decisions

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… and GDP per capita

Increasingly mobile populations

– Long distance commuters– Winter/ summer relocation

Growing numbers on margins of society

– Especially illegal migrants

Increasing reluctance to be counted

– Especially young males

The UK government is disregarding the results of the 2001 census for many purposes after over 900,000 people went missing

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The summary so far

The debate on macroeconomics and health has been characterised by:– A lack of any theoretical underpinning– Focus on what can be measured rather than what

is important– Use of data of highly dubious validity

leading to– Ideology rather than evidence, camouflaged

behind an opaque econometric smokescreen

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But one country is increasing expenditure

“Prime Minister Tony Blair has insisted the government is committed to increasing UK health spending to match the European Union average by 2005.”

Source: BBC

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The reason:Breast cancer: five-year survival (%)

Women diagnosed 1985-89

0 20 40 60 80 100

Slovakia *Poland

Estonia *Austria

Slovenia *Scotland *

EnglandSpain

Denmark *Germany

NetherlandsItaly

Finland *Iceland *

SwitzerlandFrance

Sweden

Coebergh et al., 1998

average

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A few minor technical questions …

How would the UK economy perform between 2000 and 2005– Forecasting is notoriously problematic!

What is included in “health spending”?– Where is boundary with social care?– How effectively is private expenditure captured?

What is included in the UK?– Health care is a responsibility of devolved governments in Wales,

Scotland and NIWhat is the EU average?

– UK government cites 8%, but that is unweighted average– Population weighted average in 2000 was 8.6%– As UK contributes to the average, increasing UK expenditure to

8.6% would increase EU average to 9%

Source: Towse & Sussex, BMJ

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In search of clarity

"I am saying in broad terms what I have said previously. We have in broad terms to match other European countries," (Tony Blair – emphasis added)

“The prime minister's official spokesman said the government could not exactly predict what proportion of GDP the UK would need to spend to meet the pledge because it "couldn't write other country's budgets four years in advance". “ (Source: BBC)

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The progress of nations:wealth and health – shifting the debate

A rejection of “health care expenditure is a luxury we cannot afford - a drag on the economy”Health is a criterion of progress

– The progress of nations is better measured by improvements in human welfare rather than an artificially constructed measure of monetarised transactions (AmartyaSen)

Health is a cause of progress– Investment in people will bring economic and other benefits

But health can be a casualty of progress– A singular focus on economic growth runs the risk of

increasing GDP but reducing human happiness

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An alternative approach

Health care is needed, primarily, to respond to ill health.The amount of health care needed is therefore a function of the health of the populationThe cost of the health care needed is a function of the amounts and costs of inputs and how they are combinedHow the necessary money is raised is a political choice, reflecting decisions about redistribution of resources:

– the rich can afford to pay for health care but don’t need it– the poor need health care, but can’t afford it– redistribution is necessary if people are to be treated and health

care providers are to be paid– transferring costs to individuals only reduces costs by deterring

utilisation

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Policy implications

The amount a country spends on health care cannot easily be assessed by comparisons with others where:– Patterns of health vary– Costs and combinations of inputs vary

The real policy challenges are:– How to reduce the need for health care– How to ensure it is provided as efficiently as

possible

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The take-home message

Macro-economic comparisons should be treated with considerable scepticismWe need to decide what we want to achieve – health or wealth or health and wealthInvesting in health will:– enhance economic growth– reduce health care spending– and generally make the world a better place