Healthcare Costs are Rising Fast. Need Reforms

NEWS: 24/9/2015 – Healthcare costs are rising fast in advanced economies — so fast that they will become unaffordable by mid-century without reforms, according to a new OECD report. Healthcare spending in the U.S. exceeded $4 trillion in 2022, which is twice that of other rich nations — nations that provide care to everyone and generally have better longevity and health outcomes.

Fiscal Sustainability of Health Systems: Bridging Health and Finance Perspectives finds that going over budget on health spending remains endemic in most OECD countries. Maintaining today’s healthcare, and funding future medical advances, will be difficult without major reforms that will require health and finance ministries to work together, it says.

Although the crisis led to a slowdown in health spending growth, particularly in Europe, public expenditure on health and long-term care in OECD countries is set to increase from around 6% of GDP today to almost 9% of GDP in 2030 and as much as 14% by 2060, unless governments can contain costs, according to OECD projections.

Most countries have targets or ceilings for health spending, but these are determined by economic rather than health-specific factors. Moreover, information on actual spending may not always reach finance ministries in time for corrective action to be taken.

Health spending has risen faster than economic growth in all OECD countries over the past 20 years, and public funds still account for around three-quarters of health spending. Many countries remain heavily reliant on payroll taxes, which will decline as their populations age.

Upward pressure on health spending comes from new technology in medical services, rising incomes driving higher expectations, and the growing needs of ageing populations.

In Austria, the Czech Republic, Germany, Korea, Poland, the Slovak Republic and Slovenia, more than 70% of government financing for health comes from payroll contributions. Other than in France, “sin taxes” in the form of higher value-added taxes on tobacco, alcohol or unhealthy foods account for a tiny fraction.

Governments could ease the pressure on health budgets by being more explicit and selective in defining the services covered by public health systems, by encouraging provider payment mechanisms that reward outcomes and by improving the way medicines are priced and reimbursed – for example with greater use of generic drugs.

The report also recommends:

• Setting clear spending targets, improving monitoring of spending and putting early warning systems in place to signal overspending and prompt corrective measures. Closer cooperation between budget and health ministries.
• Raising tax revenues or health insurance contributions, including by the use of “sin taxes”, and reduce a reliance on payroll taxes for funding health services.
• Investing more in health promotion and disease prevention.

The report includes special chapters on healthcare budgeting in France, the United Kingdom and the Netherlands.

For more information, or to speak to an analyst, please contact Anna Biernat in the OECD Media Office. Read more on OECD work on health: www.oecd.org/health and on health budgeting: www.oecd.org/governance/budgeting/sbonetworkonhealthexpenditures.htm

Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.