Expenditure on Health Care in the UK: A Review of the Issues

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1 Expenditure on Health Care in the UK: A Review of the Issues Carol Propper Department of Economics and CMPO, University of Bristol NIERC 25 April

2 Expenditure on health care in the UK: The facts Public expenditure 49bn, 6% GDP. Average growth 3.4% per annum Private expenditure 9bn. Average growth 4.5% Public share around 85% Within OECD and G7 UK expenditure per capita is low: UK 7% GDP per capita, G7 9%, OECD 8% Within OECD and G7 UK public share high: G7 70%, OECD 75% NIERC 25 April

5% 1960-1999 Public share around 85% Within OECD and G7 UK expenditure per capita is low: UK

3 Real Spending on NHS as % GDP Source: Emmerson et al (2000) Private Health Spending as % GDP NIERC 25 April Source: OECD Health Data 2000 ("private" = total minus public) 1960 Spending as % of nominal G Spending as % of gdp (real ter

(2000) Private Health Spending as % GDP 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 NIERC 25

4 Private Health Spending as % of Total Spending on Health Source: OECD Health Data 2000 NIERC 25 April Private Spending as % of Total

00 Private Health Spending as % of Total Spending on Health 1972 1974 1976

5 Real Spending on NHS, %yoy Source: Emmerson et al (2000) NIERC 25 April Real Spending Growth %yoy

1982 1984 1986 1988 1990 1992 1994 1996 1998 Source: Emmerson et al

6 %yoy Private Spending Growth, real terms %yoy Source: OECD Health Data 2000, private = total minus public NIERC 25 April

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 Source: OECD Health

7 The questions Does the organisation of the health care system determine expenditure? Does the organisation of the health care system determine equity? Does it matter that the UK spends a low amount on health care? NIERC 25 April

8 The organisation of health care systems Crude share of public finance hides important differences in finance and delivery of health care Public/Private Mix Mainly public provision, public finance Mixed provision, public finance Denmark Finland Greece Australia Austria Belgium France Canada Country Iceland Ireland Italy Norway Germany Japan Luxembourg New Zealand Mainly private provision, public finance Mixed provision, mixed finance Netherlands Mainly private provision, private finance Switzerland United States Source: Organisation for Economic Co-operation and Development (OECD) 1994 Portugal Spain Sweden United Kingdom NIERC 25 April

Norway Germany Japan Luxembourg New Zealand Mainly private provision, public finance Mixed provision, mixed finance Netherlands Mainly private provision, private

9 Does the organisation of the health care system determine expenditure? Problems of international comparisons: no clearly accepted model of determinants of aggregate health care expenditure; lack of comparability of data; extant studies rely on small samples, often cross sectional. Impact of per capita income on expenditure close to unity, age structure (and measures of morbidity) insignificant Institutional features affect expenditure: lower expenditure associated with gatekeepers, direct patient payments, capitation payments importance of micro incentives Organisational form may be endogenous NIERC 25 April

extant studies rely on small samples, often cross sectional.

10 Lack of impact of age on expenditure Population ageing considered major problem for health care expenditure Country specific evidence: health care expenditure concentrated in last 2 years of life In US health of elderly improved, but health care expenditure for over 85s rose by 4% p.a ; primarily outpatient care Due to gaming, real extra services, fraud: importance of micro incentives Impact of age affected by endogenous budgetary responses NIERC 25 April

health care expenditure for over 85s rose by 4% p.a. 1985-1995; primarily outpatient care Due to gaming, real extra

11 Does the organisation of the health care system determine equity? Equity in financing: extent of departures from proportionality Equity ranking : general taxation, social insurance, private insurance Country Progressivity in payments for health care Switzerland (1992) US (1987) Netherlands (1992) Germany (1989) Sweden (1990) Denmark (1994) Spain (1990) France (1989) Finland (1996).0181 Italy (1991) UK (1989).0518 NIERC 25 April

insurance Country Progressivity in payments for health care Switzerland (1992) -.1402 US (1987) -.1303 Netherlands (1992) -.

12 Equity in delivery: extent of departures from equal treatment for equal need Country Progressivity in delivery of all medical care Switzerland (1992) US (1987) Netherlands (1992) Sweden (1990) Denmark (1994) Finland (1996) UK (1989) Relationship with financing arrangements weak Pro rich inequity in physician visits NIERC 25 April

009 Netherlands (1992) -0.038 Sweden (1990) -0.014 Denmark (1994) -0.060 Finland (1996) -0.

13 Does it matter that the UK underspends? (1) The dynamics of health care expenditure Does low expenditure lead to the evolution of a poor service for the poor? low expenditure reduces support for the public sector, increases use of the private sector lack of use of public sector leads to lack of support for tax payments International evidence Levels: support for health care system across EU related to levels of per capita expenditure Dynamics: no relationship between current share of public expenditure and future levels of public expenditure NIERC 25 April

low expenditure reduces support for the public sector, increases use of the private sector lack of use of public sector leads to lack of

14 UK evidence private users less supportive of NHS (but so are NHS users) no evidence private use affects change in attitudes private insurance demand determined by public sector quality dissatisfaction with NHS services depends on NHS expenditure at regional level use of private sector alternatives less important for perceptions of national interest in expanded public funding Implications Improvement in NHS may reduce use of private sector, but may put greater pressure on NHS expenditure scope for expanding private finance at margin? NIERC 25 April

private sector alternatives less important for perceptions of national interest in expanded public funding Implications Improvement in NHS

15 Does it matter that the UK underspends? (2) The Relationship between expenditure and outcomes Mortality, infant mortality and other deaths For life expectancy and infant mortality, UK achieves better than its position in rank of G7 spenders High level of deaths from heart disease and low survival rates from common cancers NIERC 25 April

other deaths For life expectancy and infant mortality, UK achieves better than its

16 Spending allocations (RAWP) intended to reflect need broadly successful at region, district and possibly ward level Meeting of RAWP targets 1985/6 1987/8 1990/1 1992/3 1993/4 Coefficient of variation between regions /4 1994/5 1995/6 1996/7 1997/8 Range of distance from target: districts NIERC 25 April

Coefficient of variation between regions 0.103 0.097 0.093 0.091 0.

17 Inequalities in health widened s SMRs for under 65s 2.6 times higher in worst health constituencies than best, infant mortality 2.6 times higher social class differentials in infant mortality rising evidence of income related inequality for Inequalities hard to shift? 1990s ward level mortality as strongly correlated with 1890s poverty as 1991 poverty NIERC 25 April

6 times higher social class differentials in infant mortality rising evidence of income related

18 Do health care resources matter? Cross country analyses find limited evidence of relationship between health care expenditures and mortality Limited evidence from within countries suggests link with expenditure Health outcomes have difference causes including early childhood (e.g. stomach cancer) and later events Across 9 European countries health inequalities have stronger link with income inequalities than level of GPD per capita, health spending, % health care expenditure that is public 4 times as many children in poverty in worst health constituencies, 2.6 times infant mortality NIERC 25 April

suggests link with expenditure Health outcomes have difference causes including early childhood (e.g. stomach cancer) and later events Across 9 European

19 The lessons? Importance of a focus on outcomes Importance of understanding role of supplier incentives in production of outcomes Lessons from internal market on impact of incentives financial incentives do affect behaviour heavy central regulation limits changes in behaviour: incentives too weak and constraints too strong regulated competition has brought about limited change in both NHS type systems + social insurance systems NIERC 25 April

outcomes Lessons from internal market on impact of incentives financial incentives do affect behaviour heavy

20 The lessons? Likelihood of calls for increased private finance reforms on supply side accompanied by scrutiny of financing What would be the impact? Extension of private finance in current form is progressive in terms of finance, regressive in terms of use tax breaks within present system have high dead-weight loss impact depends on supply and demand response NIERC 25 April

scrutiny of financing What would be the impact?

Expenditure on Health Care in the UK: A review of the issues

CMPO Working Paper Series No. 01/030 Expenditure on Health Care in the UK: A review of the issues Carol Propper Department of Economics and CMPO University of Bristol, CASE LSE and CEPR May 2001 Abstract