Can healthcare continue to grow as a share of the economy without undermining fiscal stability?

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Yuki Murakami, OECD

The burden of healthcare spending shows an increasing trend and governments need to address health sector productivity, a focus on prevention, and the appropriate balance of public and private sector healthcare in order to achieve long-term sustainability

Contribution by Ms. Yuki Murakami, Health Economist & Policy Analyst, Organization for Economic Cooperation and Development (OECD), Paris

Written by Prof. Edward Yagi from notes taken at the Council on Business & Society Tokyo Forum 2014; edited by Tom Gamble

Healthcare under examination

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Health spending is likely to continue to grow as a share of the economy, requiring improvement of value for money, reallocation of public funds from other areas, an increase in private funding, or in all likelihood some combination of all of these. The growth rate of health spending exceeded the average annual growth rate of the whole economy in almost every country in the world between 2000 and 2009. Moreover, improving health sector productivity can dramatically change the fiscal outlook of a national economy. To gain efficiency and fiscal sustainability, finance ministers wish to reduce hospital expenditures and pharmaceutical costs even though this does not correspond with the reality that hospital spending is increasing even while spending on prevention has fallen.

Public, private, and thank heavens for our sins

iStock_000038838068_XXXLargeIn this light, careful attention should be given to the best combination of public and private healthcare service. Private health insurance markets have theoretical advantages including expanding individual choice, and spurring innovation and flexibility, but there are associated risks such as higher administrative costs and risk selection. More effective cost sharing can be achieved by specifying selected services for private coverage, and better analysing cost effectiveness to assess whether a new service or drug should be funded, and if so by whom. Taxes also have a role to play as an effective tool to improve health, although the fact that it will not be a major source of revenue should be kept in mind. However, “Sin taxes” are increasingly being used by OECD countries, targeting lifestyle choices that affect productivity and employment outcomes. The arguments for using taxes to attain public health objectives are particularly strong for tobacco products and alcohol.

Speech therapy helps

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The key drivers of healthcare spending are technology, government policies and regulations, and population demographics and this spending is likely to continue to grow as a percentage of countries’ GDP. Suppliers of healthcare services have to cope with this new situation by implementing customer-oriented strategies in order to survive in the long term. New forms of service delivery such as tele-medicine and online diagnosis can now be realized due to advances in technology. The perfect healthcare system may not exist. There is almost certainly no one best healthcare solution that can ever be implemented globally. For this reason, it is important to continue discussions, share ideas, and continue testing individual “best” solutions so that the range of global best practices will expand.

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