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Federal Department of Finance FDF
Federal Finance Administration FFA
Determinants of Public Health Care
Expenditure & Fiscal Sustainability
Network Fiscal Sustainability of Health Systems,
OECD, Paris, February 2015
Thomas Brändle* & Carsten Colombier**
Swiss Federal Department of Finance (FFA)
*University of Basel, Faculty of Business and Economics.
**FiFo – Institute for Public Economics, University of Cologne.
2
Federal Department of Finance FDF
Federal Finance Administration FFA
MotivationSwiss healthcare expenditure from 1960 to 2012 (in GDP %)
• Expenditure share government & mandatory healthcare
insurance: about 60%
• Public expenditure share in total healthcare expenditure is about 30%
• Cantonal expenditure share in public healthcare expenditure is about
66%
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
3
Federal Department of Finance FDF
Federal Finance Administration FFA
Outline
• What are the determinants of cantonal public
health care expenditure between 1970-2012?
Panel data analysis for Swiss cantons
• How will public healthcare expenditure be
affected by population ageing and non-
demographic cost drivers until 2060?
Long-term projections
• Which are the implications for assessing fiscal
sustainability?
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
Federal Department of Finance FDF
Federal Finance Administration FFA
What are the determinants of cantonal
healthcare expenditure between 1970-
2012?
Panel data analysis for Swiss cantons
5
Federal Department of Finance FDF
Federal Finance Administration FFA
Determinants of public health care
expenditure• Panel dataset for all 26 Swiss cantons between 1970 and 2012.
• Dynamic bias-corrected LSDV estimator (Bruno 2005):
• Demand-side
GDP per capita and unemployment rate
Socio-demographic drivers
• Share of the population above 64 years
• Share of the population below 6 years
• Share of the foreign population
• Supply-side
Medical progress, proxied by the mortality rate
Physicians` density
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
6
Federal Department of Finance FDF
Federal Finance Administration FFA
Determinants of public health care
expenditure• Political-institutional determinants based on political
economics literature
Parliament size (common pool)
Composition of the pool of politicians in terms of gender
Institutional restrictions that aim at discipling politicians`
budgetary discretion (fiscal rules and mandatory referenda)
Election cycles and ideology
• Major Swiss healthcare reforms
Introduction of a mandatory healthcare insurance (1996)
Long-term care finance reform (2011) and hospital finance
reform (2012)
Use of global budgets.
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
7
Federal Department of Finance FDF
Federal Finance Administration FFA
Results I
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
8
Federal Department of Finance FDF
Federal Finance Administration FFA
Determinants of public health care
expenditure• What determinants seem to be relevant to public healthcare
expenditure (expected sign & statistically significant)
• Real GDP per capita
• Unemployment rate
• Share of foreigners
• Share of women in parliament
• Population variables
• Difficult to disentangle from time fixed effects
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
Federal Department of Finance FDF
Federal Finance Administration FFA
How will public healthcare
expenditure be affected by population
ageing and non-demographic cost
drivers until 2060?
Long-term projections
10
Federal Department of Finance FDF
Federal Finance Administration FFA
Methods and data
Scenarios are based on the following cost drivers
• Population ageing
• Relationship between the rising life expectancy and the health
status of the population
• Relationship between GDP and healthcare expenditure
• Healthcare as a luxury good (demand-side)
• Purchasing power increases with GDP => incentives for
medical innovations are increased (supply-side)
• Baumol‘s cost disease
• Scarcity of healthcare and long-term care personnel
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
11
Federal Department of Finance FDF
Federal Finance Administration FFA
Results
Level 2009 2060 Change 2009-60
(in %)
Total healthcare 11.3 15.8 +4.5 40
Government (incl. social
welfare)3.5 5.6 +2.1 60
Confederation 0-4 0.6 +0.1 50
Cantons 2.3 3.9 +1.7 70
Communes 0.3 0.6 +0.3 100
Old-age insurance helplessness
allowance (AHV-HE)0.1 0.3 +0.2 200
Disability and old-age insurance
contributions (IV/ AHV-Beiträge)0.3 0.2 -0.1 -33
Mandatory basic healthcare
insurance (OKP)3.3 4.6 +1.3 39
Healthcare expenditure by source of financing
in reference scenario (in GDP % and in %)
12
Federal Department of Finance FDF
Federal Finance Administration FFA
Results
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
Breakdown of public healthcare expenditure
by healthcare area in reference scenario (in %)
17
33
72
63
114
0%
20%
40%
60%
80%
100%
2009 2060
Long-term care from 65 Healthcare Long-term care below 65
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Federal Department of Finance FDF
Federal Finance Administration FFA
Implications for fiscal sustainability
Key results
• Importance of macroeconomic development.
• Some role for the composition of the pool of politicians.
• No role for institutional restrictions on budgetary
behavior.
• Consequences of recent reforms not clear.
• Ageing will become increasingly important
• Retirement of baby boomers
• Medical progress
• Crucial determinant of healthcare expenditure
• But difficult to measure
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
14
Federal Department of Finance FDF
Federal Finance Administration FFA
Implications for fiscal sustainability
Evaluation of fiscal sustainability
• Cantonal budgets most severly affected by additional cost burden
• Cantonal share of public HCE in 2009: 66%; in 2060: 70%
• Public healthcare expenditure seriously affected by long-term care
from 65
• LTC-share in public HCE in 2009: 17%; in 2060: 33%
• Expenditure (in GDP %) of communes and old-age insurance
helplessness allowance double and triple resp. up to 2060
• Sustainabiliy of federal health budget not jeopardised as outlays
are practically limited to individual premium reduction
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
15
Federal Department of Finance FDF
Federal Finance Administration FFA
Implications for fiscal sustainability
Policy measures
• Monitoring: Regular analyses and projections on public
healthcare expenditure.
• Proposals for policy makers related to the Swiss
comprehensive health care strategy (Health 2020).
• Fostering preventive measures, e.g. improvement of
health education.
• Fostering organisational innovation, e.g. ehealth,
quality standards and coordinated care models.
• Prevention of shortage of skilled health labor force.
• Ensure adequate financing of long-term care (e.g., a
social insurance solution).
Public Healthcare Expenditure; Brändle/ Colombier;
OECD February 2015
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