HEALTH ECONOMICS
Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
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Authors: Éva Orosz, Zoltán Kaló and Balázs Nagy Supervised by Éva Orosz
June 2011
Week 6
Analysis of health expenditure
Author: Éva Orosz Supervised by Éva Orosz
Overview
• Definition of health expenditure (based on OECD System of Health Accounts)
• Main indicators of health expenditure
• Interpreting key indicators
• Methodological issues in cross-country and over-time comparison
• Key driving forces of health spending growth
Definition of health expenditure
• “Total expenditure on health measures the final use of resident units of health care goods and services (current expenditure on health) plus gross capital formation in health care provider industries” (OECD, 2000, p. 57.).
• Includes imports of health care (health spending abroad by tourists and other
3 persons travelling abroad). Excludes exports (that is health services provided by domestic providers to foreigners).
• The upcoming revised version of the System of Health Accounts proposes to use current expenditure on health (instead of total expenditure) as the major health expenditure aggregate.
Production and use of health services
Source: (OECD, 2011)
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Key indicators for analysis of health expenditure
• Health expenditure per capita
• Annual average growth rate in real health expenditure
• Total health expenditure as a share of GDP (percentage)
• Current health expenditure as a share of GDP (percentage)
• Public (and private) share of health expenditure on health (percentage)
• Health expenditure by function
• Health expenditure by provider
• Health expenditure by major disease (ICD) categories
• Health expenditure by age and gender
• Sources of financing for health care
• Share of public expenditure in total health expenditure
Health expenditure as a share of GDP (percentage)
• Health expenditure as a share of GDP shows what share of Gross Domestic Product (GDP) is allocated to final consumption of health services and goods and capital investment in health care infrastructure.
• Current health expenditure as a share of total household consumption is considered a more adequate indicator to measure the relative magnitude of health goods and services consumed by individuals.
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Contribution of the health care sector to production of GDP
• GDP is measured from three perspectives: production, final consumption and income.
• The measurement of the contribution of the health care sector to production of GDP (that necessarily differs from the share of health services and goods in final consumption) is influenced by that what activities are classified under the health care sector.
• The ISIC (International Standard Industrial Classification) used for estimation of production of GDP does not classify production and trade of pharmaceuticals under the health care sector, while health expenditure (calculated from a consumption perspective) includes spending on pharmaceuticals.
Sustainable financing – indicators
• Macro-economic sustainability of health financing system – Total health expenditure as a share of GDP
– Public expenditure on health as a share of GDP
• Fiscal sustainability
– Public expenditure on health in the context of general government spending – Public expenditure on health as a share of general government spending
• Financial position of financier and provider organizations – Profitability of provider organisations
– Operating balance of social health insurance fund(s)
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Total health expenditure as a share of GDP, 2008
Source: (OECD, 2010b)
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Public expenditure on health (PEH) as a share of GDP in OECD countries, 1992,
2007
Source: OECD HealthData, 2009
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Annual growth in total health spending and GDP, 1993 to 2008
Source: (OECD, 2010b)
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Total health expenditure as a share of GDP, 1995-2007 (selected OECD countries)
Per capita health expenditure
• Per capita health expenditure measures the average (per capita) volume of health services and goods consumed in a country. The concept of volume includes both quantity and quality.
• V= p* Q
• V: expenditure at current prices; p: prices; Q: volume
• Expenditure at current prices is influenced by two factors: the changes in prices and the changes in the volume of health services and goods. As the indicator is to reflect the changes in volume, it is necessary to deflate (i.e. remove inflation from) nominal health expenditure.
6 8 1 0 1 2 1 4 1 6
1 9 9 5 1 9 9 7 1 9 9 9 2 0 0 1 2 0 0 3 2 0 0 5 2 0 0 7
%GDP
U n i t e d S t a t e s O E C D
S w i t z e rl a n d G e rm a n y
C a n a d a J a p a n
Source (OECD, 2009)
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Comparison of per capita expenditure across countries
• A basic methodological issue is: to convert data from national currency units to a common currency, such as the US dollar (USD) at purchasing power parity (PPP).
• In theory, a health-specific basket of goods and services should be priced in the national currency across different countries, and then converted to USD – that is to calculate health-specific PPPs. (Methodology work is under way at OECD).
• Currently, the economy-wide (GDP) PPPs are used as the most available and reliable conversion rates.
Total health expenditure per capita, public and private, 2008
Source: (OECD, 2010b)
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Annual average growth rate in real health
expenditure per capita, 1998-2008
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Per capita total spending on health in 1993 and annual growth in spending in OECD
countries, 1993–2008
Source: (OECD, 2010a)
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Expenditure on pharmaceuticals per capita and as a share of GDP, 2008
Public and private share of expenditure on health
• This indicator reflects that what share of (the volume of) health services and goods is available to individuals based on the principle of solidarity, and what share is available based on the principle of ability to pay.
Source: (OECD, 2010a)
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Public share of total expenditure on health, 2008
Source: (OECD, 2010a)
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Out-of-pocket and private health insurance expenditure, 2008
Source: (OECD, 2010a)
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Measuring productivity of the health care sector
Source: UK Centre for the Measurement of Government Activity, Public Service Productivity: Health Care. January 2008
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Productivity of the health care sector in the United Kingdom
Source: UK Centre for the Measurement of Government Activity, Public Service Productivity: Health Care. January 2008
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References
• OECD (2000), A System of Health Accounts, OECD, Paris
• OECD (2009), Health at a Glance 2009,
• OECD (2010a), OECD Health Policy Studies. Value for Money in Health Spending, OECD, Paris
• OECD (2010b), Health at a Glance Europe 2010, OECD, Paris
• Orosz É (2010), A magyar egészségbiztosítás néhány stratégiai kérdése. In:
Bodrogi J. (szerk): A magyar egészségÜGY. Semmelweis Kiadó, Budapest
• Centre for the Measurement of Government Activity (2008), Public Service Productivity: Health Care. January 2008
