Public spending on health and long-term care: a new set of projections

KEY POLICY MESSAGES

This paper provides new projections of public spending on health and long-term care for OECD countries and the BRIICS countries (Brazil, Russia, India, Indonesia, China and South Africa). Despite the inevitable uncertainty surrounding projections, they suggest a rapidly rising trend over the next 50 years. Starting from around 6% of GDP currently, the combined public health and long-term care expenditure for OECD countries is projected to reach 9.5% in 2060 in a cost containment scenario assuming that policies act more strongly than in the past to rein in some of the expenditure growth. In a cost-pressure scenario, which assumes no stepped-up policy action spending could reach 14% of GDP. Projected increases are even steeper for some of the BRIICS going on average from the current 2.5% to 5.3% and 9.8% of GDP depending on the scenario. These projections follow a continuous increase of health expenditure as a share of GDP for several decades. Indeed, despite a slowdown in health expenditure levels during the recent crisis, the decrease in GDP has been proportionally greater and this has led to a sharp increase in the recent health to GDP ratio.
Differences in health and long-term care spending emerge across OECD countries partly reflecting differing demographic trends as well as initial levels of income and informal long-term care supply. Korea, Chile, Turkey and Mexico, for example, are projected to experience above average increases in public health expenditures. By contrast, the Nordic countries, as well as the United States and the United Kingdom, display lower than average growth over the next 50 years.‌‌
The drivers of expenditure increases will differ between spending categories: health care spending will be pushed up mostly by the combined effect of technology, relative prices and exogenous factors (such as institutions and policies), while pressures on long-term care costs will originate mostly from weaker productivity gains than in the economy as a whole. Under reasonable assumptions about improving health conditions of the elderly in ageing societies (the so-called “healthy ageing” hypothesis) and the response of health spending to rising incomes, pure demographics and income effects will play only a minor role in the projected increase of public health and long-term care expenditures.
In all countries, both health and long-term care will be driving up public spending. Focusing on the cost-containment scenario, for OECD countries average public health care expenditure is projected to increase from 5.5% of GDP in 2010 to 8% in 2060; whereas public long-term care expenditure is projected to increase from 0.8% to 1.6% of GDP in 2060. For the BRIICS, average public health care expenditure is projected to increase from 2.4% of GDP in 2010 to more than 4% in 2060; while public long-term care expenditure is projected to increase from 0.1% to 0.9% of GDP in 2060.
Given the competing pressures from other social spending programmes, these projected trends in public health and long-term care spending are likely to be a major source of concern for most governments. Upside risks related to extension of the typical pre-death period of ill health as longevity increases, higher than expected costs as technical progress makes it possible to meet new demands and increased dependency due to obesity trends or dementia suggest that the projected path of expenditures provides a lower bound in the absence of more ambitious cost containment policies.

Productivity and long term growth

Public spending on health and long-term care: a new set of projections