Economic survey of Denmark 2008: Health: a major fiscal challenge

 

Contents | Executive summary | How to obtain this publication | Additional info

The following OECD assessment and recommendations summarise chapter 5 of the Economic survey of Denmark published on 19 February 2008.

 

Contents                                                                                                                           

Danes live longer now, but lifestyle remains the key to progress in longevity and health status

Life expectancy, while relatively low from an international perspective, has been improving in recent years and the gap with the other Nordic countries had narrowed to 2½ years for women and 2 years for men in 2005. Still, cancers result in premature deaths more often than in other countries, and this could partly reflect previous inadequacies in healthcare attention or quality. The government’s increased focus on earlier diagnosis and access to treatment, notably for cancer, is therefore welcome. However, having a healthy lifestyle is the key determinant of longevity, and the coming prevention strategy should therefore be welcomed: the stated objective it to raise average life expectancy by three years over a ten-year period. With half of the adult population smoking on a daily basis back in 1980, Denmark was a clear outlier, but now the share has come down to a quarter, just marginally above the OECD average. Meanwhile, obesity is rising, as in other countries, and excessive alcohol consumption, notably among youth, remains problematic. The government’s increased focus on nutrition and physical exercise is therefore well chosen, but promoting moderate and sensible use of alcohol should also be a priority for public health policy.


Who should pay for growing healthcare costs?

At close to 8% of GDP, Danish public spending on health and long-term care is only surpassed by France, Iceland and Germany. Indeed, public consumption growth has given healthcare particular priority with the number of physicians employed in public hospitals rising almost 3% annually over the past five years. Nevertheless, as private spending is rather limited, total healthcare spending is close to the OECD average and well below that in the United States or Switzerland. Looking ahead, continued technological advances enlarging the range of effective treatments might intensify spending pressures. Consequently, public funding must be prioritized for where it is most needed.


Public spending on health and long-term care is high and rising

 


 
For costly healthcare needs that arrive unpredictably, there is a clear case for insurance, and the Danish model with tax-financed healthcare may be a relatively well-functioning and simple solution. In this light, the structure of co-payments for Danish healthcare is understandable: it mainly applies to pharmaceuticals, dentists and some treatments, such as physiotherapy. Yet, the share of private spending has fallen in recent years. Consideration could be given to co-payments for general practitioner visits, as exist in other Nordic countries. Annual ceilings, as currently used for pharmaceutical co-payments would maintain equal access and avoid disadvantaging chronically ill and low-income groups. The hardest element to justify from a social insurance perspective, however, is that a quarter of the population aged 65 or over receives publicly funded long-term care, including help with practical tasks like housekeeping for a few hours a week. Norway is the only other OECD country coming close to having such wide coverage. Sweden offers long-term care to considerably fewer older persons – but the presumption of informal care obligations does not prevent 45-64 year old Swedish women from having considerably higher employment rates than their Danish peers. Targeting public funding for practical home help to cases with substantial needs would free considerable resources without undermining equity considerations. It would be a less complicated alternative than having to move part of the funding for core healthcare services over to private insurance or develop individual health savings accounts. The rapid expansion of employer-paid private health insurance should therefore not be favoured with complete exemption from income taxation. Funding diversity helps nurture innovation in healthcare provision, but the tax exemption may create incentives to cover a wide array of wellness services for which insurance is not needed, thereby magnifying the loss of tax revenue.

 

Many older Danes receive publicly funded long-term care at home

 


More efficient healthcare provision is vital

Following a doubling of the student numbers admitted to medical school in the 1990s, the number of graduates has risen to 4% of the physician workforce in 2005. This is relatively high in international comparison, implying that the physician workforce is set to grow along a path above what can be expected for most other OECD countries. For nurses, current shortages and growing demand could be eased if more worked full time, as currently 6 out 10 work part time. There is also scope for reallocation of tasks among health professions to improve efficiency, technology adoption and accommodate staff shortages.


Increased use of activity-based funding mechanisms appears to be a key factor behind strong productivity improvements in hospitals. Indeed, the ample spending growth of recent years has been more than matched by increased treatment activity. Waiting times have shortened by 6 weeks (20%) from 2002 to 2006. Activity-based funding can still be refined, but the strength of incentives might be maintained broadly as it is today. Meanwhile, the role of private-sector healthcare providers could be expanded via both contracting and choice to ensure contestability and spur innovation. Choice in home care introduced five years ago has successfully created contestability vis-à-vis public agencies, even though the effect is still limited in areas where the market share held by private providers is small. Finally, public health sector pay schemes might be developed more in line with the private sector with elements of team-level and individual pay flexibility to make it easier to nurture skill development and effort.


Could the system be made more attentive to those health problems that matter for the ability to stay on the labour market?

Wide labour-market participation is necessary for fiscal sustainability and thereby for good-quality healthcare to continue to be affordable for society. The healthcare system itself has a role to play here, by helping people with health problems maintaining, if possible, a foothold in the labour market. From 2001 to 2007, the share of 15-64 year olds receiving some form of sickness or disability-related income benefit increased from 9.6% to 11.2%. Meanwhile health care provision has grown mainly for persons aged 65 or older. Better coordination between the health and employment services could help to address, early on, health problems that are part of the complex set of factors that can lead to prolonged detachment from the labour market. Several measures could be taken:

  • Establish a national strategy to identify and prioritize the preventive and curative measures that will help maintain labour market attachment. Give the new coordination committees, involving all municipalities within each regional authority, a clear responsibility for the cooperation between healthcare providers and municipal job centres administering benefits and activation for persons with sickness or disability.
  • Adjust funding incentives to advance these priorities: municipalities could carry more of the costs for benefits and flexjob subsidies, combined with clearer instruments to guide the availability of vocational healthcare services.
  • Develop the use of models – like the so-called round table for dialogue between the employer, job-centre caseworkers, physicians and the employee – to ensure early action when sickness absence reaches a duration that implies the risk of drifting into long-term absence and loss of labour market attachment. Consider differentiated employer co-financing of sickness benefits depending on participation in roundtables or similar dialogue.


Part of the sickness- and disability-related benefits would also need adjustment to make sure that it pays to remain in, or return to, unsubsidised employment. This concerns, in particular, the flexjob scheme where the public subsidy currently offers complete coverage of the income loss associated with reduced work capacity. Consequently, employers, as well as the persons concerned, have a clear incentive to seek a flexjob, rather than taking another job that might be easier to manage but pays less. As health conditions are sometimes hard to assess objectively, some element of self-insurance might be warranted to prevent overuse of the scheme: the salary under a flexjob should be lower than for a normal unsubsidised job. For example, flexjobs could pay a wage for the hours worked and an unemployment benefit for the hours not worked. In general, the maximum flexjob wage subsidy should be scaled down further to be equal to, or less than, the disability benefits.

 

How to obtain this publication                                                                               

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Denmark 2008 is available from:

Additional information                                                                                                  

 

For further information please contact the Denmark Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Jens Lundsgaard and David Turvey under the supervision of Stefano Scarpetta. Research assistance was provided by Lutécia Daniel.

 

 

 

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