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Contents | Executive summary | How to obtain this publication | Additional info
The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of Iceland published on 28 February 2008.
Contents
Longer-term fiscal pressures call for reforms to the health-care system
Notwithstanding a secular increase in public expenditure, government finances are in better shape than in many other countries. Public indebtedness is low by international comparison (although the government has very high contingent liabilities in international comparison) and fully funded occupational and public employee pension funds limit the effects of population ageing. Still, there are some areas where spending pressures will remain strong, in particular health care, which is largely government funded, suggesting that the authorities should aim at achieving budget surpluses. Per capita expenditure on health care has risen more than on average in other OECD countries and its growth has exceeded that of Iceland’s per capita income by an even higher margin. Although long-term projections are surrounded by considerable uncertainties, they suggest that, as a result of population ageing and medical cost pressures, public health-care spending could reach 15% of GDP by 2050 if no restraining measures are taken. Certainly, Iceland is a rich country and can afford to spend a lot on health care. But while Iceland’s GDP per capita betters the OECD average by about one quarter, given low private health care spending, its public per capita expenditure on health care already now, when its demographic structure is still very favourable, exceeds the OECD benchmark by 40%. Given the outlook for public health-care spending and its implications for government finances, the authorities need to explore the scope for, and take measures aimed at, raising cost-effectiveness.
The good health status of the population…
To be sure, care has to be taken to maintain the high quality health services and the enviable health status of the Icelandic population. Life expectancy is among the highest in the world. Perinatal and infant mortality are the lowest, and maternal mortality virtually non-existent. Icelanders can expect to be healthy for about 90% of their (long) lives. Recent indicators of the quality of care (for instance, survival rates for certain illnesses and in-hospital case fatality rates) also show Iceland in a very favourable light. However, empirical estimates, which take into account a wide range of health determinants, suggest that, reflecting declining returns to scale, every further health gain may come at a very high price, while maintaining the present excellent health status should be possible at lower levels of resource use and expenditure. Indeed, although the geography and population distribution of the country probably justify an above average share of health care workers, staffing ratios seem excessive by international comparison.
… could be achieved at lower costs
There are a number of options for enhancing spending efficiency in the health-care sector. Impediments to private provision, which accounts for only one quarter of publicly financed health services, should be removed and the sector opened up to competition. But when services are sourced out to the private sector, the authorities need to have the necessary expertise and resources to design appropriate service contracts and monitor the outcomes. To avoid that increased patient choice overly stimulates demand for services, cost sharing should be introduced where it does not exist and reformed where it does not provide sufficient incentives for cost savings (for instance, pharmaceuticals). This would also relieve the pressure on public finances. In addition, or alternatively, consider a form of gate-keeping system in which patients are directed to the most appropriate level of care. Activity based funding in hospitals, which account for a high share of health care spending in Iceland, should be accelerated and carefully implemented. Within a robust regulatory framework, output related prospective payment systems can encourage providers to minimise costs without hurting patient care if associated prices are set correctly and there is appropriate control of quality. The authorities do not always make use of the scope provided by a high degree of centralisation to increase efficiency. What is clearly needed is a prioritisation of public health care spending based on cost benefit analysis of different kinds of services. Also, the government has to make more use of its power as the main buyer of health services to reduce costs, by putting downward pressure on prices or shifting care to less expensive services. Reforms along these lines should go a long way towards eliminating the apparent efficiency gap of the Icelandic health care system.
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 Iceland 2008 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
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Additional information
For further information please contact the Iceland Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Hannes Suppanz and Andrea de Michelis under the supervision of Patrick Lenain. Research assistance was provided by Ane Kathrine Christensen.
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