determinants of public health care expenditure & fiscal sustainability - thomas brändle and...

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



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



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?


OECD February 2015



What are the determinants of cantonal

healthcare expenditure between 1970-

2012?

Panel data analysis for Swiss cantons

5



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


OECD February 2015

6




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.


OECD February 2015

7



Results I


OECD February 2015

8




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


OECD February 2015



How will public healthcare

expenditure be affected by population

ageing and non-demographic cost

drivers until 2060?

Long-term projections

10



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


OECD February 2015

11



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



Results


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

13



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


OECD February 2015

14




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


OECD February 2015

15




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).


OECD February 2015

determinants of public health care expenditure & fiscal sustainability - thomas brändle and...

Government & Nonprofit

public expenditure share

total healthcare expenditure

care finance reform

cantonal expenditure

public economics

hospital finance reform

swiss cantons

thomas brndle