Budget treatment


More about public finances

Mark Pearson, Head, OECD Health Division


The growing burden of healthcare expenditure on public budgets is hardly a recent phenomenon. For 15 years before the onset of the financial crisis, health spending per capita had been going up by over 4% per year in real terms across the OECD area-much faster than growth in real incomes. Nearly all OECD countries will soon have nearuniversal healthcare coverage-an historic achievement. But health now accounts for over 9% of GDP on average, and almost three-quarters of this spending is from the public purse. Small wonder that health budgets have attracted attention from those anxious to reduce public spending as part of the effort to rein in public sector deficits and debt. Health ministers from across the OECD and beyond met in October 2010 to discuss what should be done.


Big cuts in health spending have taken place recently in countries like Estonia, Iceland and Ireland. Retrenchment in some areas of health spending has taken place across southern and eastern Europe. Yet by and large, health spending has not been cut in most countries, and in many countries future spending is planned to be roughly the same as at present, at least for the next few years. Countries which have cut health spending have generally protected spending on prevention-one of the most cost-effective ways of “buying” better health. They have sought to protect access to high-quality care, for example, by agreeing to cuts in wages of health workers rather than reducing employment. They have reduced pharmaceutical spending, particularly by promoting generic use, and deferred new investment.


So changes in health spending help restore public finances? Not likely. The reason for the rapid growth in health spending has been that demand has been rising, due to new technologies, greater patient expectations and population ageing. These pressures continue. Holding spending constant will therefore seem like cuts in spending. Indeed, past experience suggests that holding health spending down for a few years is possible, but the underlying pressures eventually will overwhelm attempts to cap spending. The important challenge countries face is to reform their health systems to deliver high-quality health services to all at a reasonable cost.



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