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---

### Foreword — Fiscal and macroeconomic framing
- Mandate: IMF focuses on macro-economic stability; this volume examines health care reform through that lens, emphasizing macroeconomic stability and fiscal stability.
- Historical drivers:
  - Public spending on health care has been a key driver of aggregate increases in public spending over the past 40 years.
- Projected trajectory and fiscal context:
  - Spending is projected to continue rising as a share of GDP unless reforms are undertaken to help break these trends.
  - Projected increases in public health spending will take place at a time when most countries need to undertake large fiscal adjustments to help bring public debt ratios down to more prudent levels.
  - Moderating the growth of age-related spending, including on health, will have to be a major element of the fiscal consolidation strategy in the advanced economies over the coming years.
  - For many emerging economies, the outlook for health spending is better, and immediate pressures are expected to be more benign, but expanding access and improving quality will be difficult given limited fiscal space.
- IMF analysis and objectives:
  - The IMF’s Fiscal Affairs Department has prepared projections of future health care spending if current policies were maintained and estimates of the potential fiscal impact of various reform options to contain health spending growth.
  - Important objective: improve understanding of how feasible it would be to slow down the projected growth of health spending; this influences the composition of fiscal consolidation strategies.

### Structure and major themes (table of contents summary)
- Part I: Trends and Outlook for Public Health Spending (includes "New Projections of Public Health Spending, 2010–50").
- Part II: The Role of the Private Sector in Health Care Financing and Delivery.
- Part III: Cross-Country Studies (containing lessons on containing public health spending and measuring health effects).
- Part IV: Country Case Studies — Advanced Economies.
- Part V: Country Case Studies — Emerging Economies.
- Analytical emphases:
  - Projection of future public health spending under maintained policies.
  - Estimation of potential fiscal impact of reform options to contain health spending growth.
  - Cross-country analyses and case studies to identify policy responses that contain public health spending pressures efficiently and equitably.
  - Measuring health effects of health care reform.

### Chapter 1 — The Challenge of Health Care Reform in Advanced and Emerging Economies

Fundamental objectives of a health care system
- According to WHO, the three fundamental objectives:
  - improving the health of the population it serves;
  - providing financial protection against the costs of ill-health; and
  - responding to people’s expectations.
- Implicit fourth objective: equity — minimizing differences among individuals and groups while maximizing average health.

Rationale for reform and evidence on health and growth
- Significant improvements in health (life expectancy and access) have occurred (WHO, 2010a, 2010b).
- Microeconomic literature: health improvements increase worker productivity, education, and savings (Bloom and Canning, 2008; Basta, Soekirman, and Scrimshaw, 1979; Kalemli-Ozcan, Ryder, and Weil, 2000; Bloom, Canning, and Graham, 2003; Hurd, McFadden, and Gan, 1998; Alsan, Bloom, and Canning, 2006).
- Macroeconomic evidence is mixed: some studies find large, significant effects while others find small or insignificant effects.
- Incomplete access, high and rising costs, and inefficiencies make health reform urgent in advanced and emerging market countries.

Health reform challenges — key findings
- Incomplete Coverage:
  - Universal insurance coverage is essential to achieve objectives; pools risk and provides financial protection.
  - Most advanced economies have universal insurance coverage, with the exception of the United States, which passed landmark legislation to achieve near-universal coverage in 2010.
  - Options to achieve universal coverage: tax-financed system, social insurance system, private insurance, or mixed system (Gottret and Schieber, 2006).
  - Main barrier: insufficient availability of resources (WHO, 2010b).
- Health Inequalities:
  - Large inequalities between and within countries persist.
  - Inequalities driven largely by socioeconomic factors: income, education, occupation.
  - No evidence of a trade-off between raising average health and improving equity.
  - System features can exacerbate inequalities (e.g., informal payments disproportionately burden the poor).
- Escalating Cost:
  - Since 1970:
    - total real per capita health spending has increased fourfold;
    - spending as a share of GDP has increased from 6 percent to 12 percent in advanced economies.
  - In emerging economies: total health spending increased from below 3 percent of GDP to 5 percent.
  - Primary drivers: rising income, population aging, technological advancements; additional factors include the Baumol effect, health insurance coverage, and health policies.
  - Disease-profile shift:
    - NCDs are the leading causes of death globally and kill more people each year than all other causes combined.
    - Nearly 80 percent of NCD deaths occur in low- and middle-income countries (WHO, 2010c).
    - NCDs largely caused by lifestyle risk factors: tobacco use, unhealthy diets, insufficient physical activity, harmful use of alcohol.
    - Proven interventions: tobacco and alcohol tax increases, tobacco control measures, and salt reduction (WHO, 2010c).
- Inefficiencies:
  - Large inefficiencies documented in health spending (allocative and productive inefficiencies, inappropriate and ineffective use of medicines, medical errors, suboptimal quality of care, waste, corruption, and fraud).
  - WHO estimate: 20 to 40 percent of resources spent on health are wasted.
  - OECD study: reducing inefficiencies in health systems by half in the OECD would raise life expectancy at birth, on average, by more than one year.
    - By comparison, a 10 percent increase in health care spending per capita would increase life expectancy by only three to four months.

Complexity and fiscal implications
- Trade-offs between preserving progress in health outcomes and controlling costs.
- No unique “optimal” level of public health spending; differences reflect country preferences and constraints.
- Health reform as fiscal challenge:
  - In advanced economies, public health spending has risen by about 4 percentage points of GDP since 1970 — about half the overall increase in noninterest public spending.
  - Projections presented in this book: the net present value of spending increases over 2011–50 is close to 100 percent of today’s GDP.
  - Fiscal gauge: change in the primary balance needed to bring public-debt-to-GDP ratio back to the precrisis median of about 60 percent of GDP.
    - Based on IMF Fiscal Monitor (IMF, 2011), the needed change in the primary balance would average about 8 percentage points of GDP.
  - Fiscal consolidation will require revenue increases and expenditure reductions in advanced economies.
  - Stabilizing age-related-spending-to-GDP ratios, including by containing health spending growth, could be an important pillar of adjustment.
- Emerging economies:
  - Some have fiscal space to increase health spending (many in Asia and Latin America); challenge is to expand basic coverage fiscally sustainably while avoiding inefficiencies seen in advanced economies.
  - Others, where coverage is already extensive (much of emerging Europe), must enhance efficiency and limit increases as a share of GDP.

Key policy questions
- What are trends in spending across time periods and country groups? What has influenced these trends? How much does population aging account for the increase in spending?
- What is the outlook for public health spending over the next 20 years? Which countries face the largest public health spending pressures?
- What reforms could advanced economies consider to control public health spending growth efficiently and equitably? What potential savings could different reforms realize? How to ensure reforms do not conflict with equitable access?
- How can emerging markets expand coverage and improve outcomes without incurring high fiscal costs?

Part I findings and projections (summary of empirical results)
- Methodological improvement: use of country-specific estimates for ECG (excess cost growth) and other country-specific drivers.
- Highlights:
  - Two-thirds of the rise in total health expenditures over recent decades is due to greater public-sector spending.
  - On average, approximately one-fourth of the increase in public-spending-to-GDP ratios is explained by aging; the remainder is due to ECG.
  - In emerging economies, public health spending rose from around 1½ to 2½ percent of GDP; private spending increased by about the same amount.
  - Advanced-economy projections:
    - public health spending projected to rise on average by 3 percentage points of GDP over the next 20 years;
    - public health spending projected to rise by 6½ percentage points of GDP over the next 40 years.
    - Around one-third of that increase is due to population aging; the remaining two-thirds due to ECG.
    - Recent health care reforms in most countries are unlikely to alter long-term public health spending trends.
  - Emerging-economy projections:
    - public health spending projected to rise by 1 percentage point of GDP over the next 20 years (about one-third of the increase in advanced economies).
    - Aging would account for about half of the increase in expenditure.
    - Spending pressures expected to be higher in emerging Europe and Latin America than in emerging Asia.
    - Modest projected increases suggest rising health spending is unlikely to pose a heavy fiscal burden in emerging economies over the next 20 years; primary challenge is improving efficiency.

### Part II — The Role of the Private Sector in Health Care

Private sector role and private insurance in Asia (Chapter 4 summary)
- Despite market failures, the private sector can play an important role in achieving health system objectives; no optimal level of private involvement exists—role should depend on country preferences and constraints.
- In Asia, governments often take primary responsibility for health care provision and private insurance only plays a minor role.
- Key questions for policy:
  - Should private insurance replace public insurance or work in coordination with public insurance?
  - How would a larger role for private insurance affect health care costs and quality of care?
  - What regulations are needed to ensure functioning of private insurance markets?
  - Could private insurance be involved in care coordination, disease management, or provider network management?
- Chapter conclusion:
  - The role of private insurance in Asia is not expected to change dramatically, largely because of social beliefs.
  - If private insurance served only as a supplement to public coverage, growth of private insurance could potentially improve quality of care, contingent on a strong regulatory system.
  - There may be scope for private insurance to play a larger role in care coordination, which could potentially improve system functioning.

Private sector’s economic functions and constraints (Chapter 5 summary)
- Private sector potential roles: financing and delivering health care; protecting against catastrophic risks; maintaining and enhancing population health.
- The appropriate role depends heavily on the “distributive social ethic” of the system.
- Market imperfections: asymmetric information, lack of transparency in pricing, monopoly power.
- Two contrasting orientations:
  - Market-rationing orientation: delegate functions to market forces and regulate to ensure honesty and efficiency.
  - Social-solidarity orientation: government must step in and strictly monitor and regulate the private sector to achieve egalitarian outcomes.
- Feasible mixed approach:
  - Government-run health insurance for social solidarity combined with a mixed public-private delivery system.
  - Private insurers can perform purchasing, claims processing, quality control, and cost control under competitive contracting, but cannot properly perform premium collection and risk pooling if social solidarity is a priority.

Cross-cutting empirical evidence and implications
- Empirical evidence on the appropriate role of the private sector is largely inconclusive; debate often ideological.
- Importance of comprehensive reform evaluation: costs, health outcomes, equity, and financial protection.

### Chapter 13 — Germany: Health Care Reforms since the 1980s (Stolpe) — key lessons

Overview and attribution of spending growth
- Increase in health care spending, as a share of GDP, is attributable to unification in 1990.
- Germany has used a wide variety of policy approaches: budget caps, market mechanisms, pecuniary incentives.

Reform instruments and observed outcomes
- Budget caps:
  - Finding: Budget caps can reduce spending for a short period, but are less effective long term if underlying causes are not addressed.
- Market mechanisms:
  - Finding: Market mechanisms require correct alignment of incentives and behaviors to work effectively.
- Risk-adjustment schemes:
  - Finding: Age- and sex-based risk adjustment scheme did not work well because of cream skimming by sickness funds.
  - Finding: Morbidity-based risk adjustment scheme (Morbi-RSA) has fared better; it has substantially reduced sickness funds’ incentives for risk selection and even made some chronic diseases financially attractive for the risk pool.
  - Uncertainty: Whether Morbi-RSA will provide sufficient flexibility to adjust payment schedules in response to new medical technologies remains to be seen.
- Providers and payment incentives:
  - Finding: Sickness funds’ collective monopsony power vis-à-vis regional physicians’ associations has long been effective in containing the cost of physician services in statutory health insurance (SHI).
  - Finding: DRGs have helped to contain the cost of hospital care and triggered changes in hospitals’ competitive behaviors and management strategies.
- Pharmaceuticals:
  - Finding: Reference prices for generics alone have had ambiguous effects.
  - Finding: Average prices of pharmaceuticals used in SHI began to decline substantially only after sickness funds were given the freedom to negotiate volume rebates.
- Net assessment:
  - Finding: Despite some setbacks, reforms in Germany have been successful in containing spending growth while maintaining high quality health care.

Comparative references and contextual country lessons (selected highlights)
- Taiwan Province of China:
  - Single-payer NHI introduced in 1995; achieved near universal coverage in less than a year.
  - Financing mix: government revenues, payroll taxes, household premium contributions, and cost sharing.
  - Cost sharing constitutes around 37 percent of total health care spending.
  - Administrative costs are 1.3 percent of the National Health Insurance (NHI) budget.
  - Challenges: financial stability of the NHI fund; difficulty raising contribution rates to finance spending increases.
  - Lessons: global budgets and government price control in a single-payer system can control total health care spending; single-payer supports equity and uniform health information systems; combining single-payer with private provision can promote choice and productivity.
  - Suggested reforms: build capacity for comparative effectiveness analysis and health technology assessments; move from fee-for-service payment to capitation payments; address NCDs and long-term care.
- India:
  - National Rural Health Mission would increase health care spending by 1 to 2 percent of GDP between 2005 and 2012.
  - Program weaknesses: allocation method did not adequately account for state needs; unclear matching-fund requirements for states; failure to execute planned increases due to states’ inability to make matching contributions.
  - Outcome: impact on health spending and outcomes has been negligible.
  - Rashtriya Swasthya Bima Yojana covers selected hospitalization and daycare expenses for the population below poverty line; program participation has been low at less than 50 percent.
  - Fiscal constraint finding: econometric analysis suggests that states significantly reduced their own health expenditures when they received transfers from the central government, with an elasticity close to one.
- Other emerging-economy highlights:
  - China: good health outcomes with relatively low health care spending over the last 60 years; recent steps to expand coverage; challenges include high out-of-pocket spending, wide inequalities, and inefficient use of resources. Incremental approach can be effective in expanding coverage and access.
  - Chile: almost universal coverage via mandatory social security and explicit guarantees; mixed financing and provision; system is de facto segmented with inequity between public and private quality of care. Success attributed to strong fiscal and economic performance, efficient institutions, and political consensus.
  - Mexico: universal coverage not yet achieved; system segmented across many public and private insurers and providers, leading to high fragmentation, inequality of access, and high administrative costs. Out-of-pocket (OOP) spending accounts for half of total health outlays.
  - Estonia and Hungary: post-transition reforms emphasized compulsory social health insurance, primary care reform, hospital-sector reduction, and reliance on public financing; challenges include shortages of health professionals, cost pressures, high lifestyle-related risks, and inefficient use of resources.

Lessons and policy implications (synthesis from Germany and comparative chapters)
- Short-term fiscal tools (budget caps) are useful temporarily but insufficient without addressing structural drivers of spending growth.
- Effective market mechanisms depend on aligning incentives for payers, providers, and purchasers.
- Risk-adjustment design matters: morbidity-based approaches can reduce cream skimming better than age- and sex-based schemes.
- Collective purchasing/monopsony power of payers can contain physician-service costs.
- Payment reforms such as DRGs can contain hospital costs and reshape hospital management and competition.
- Pharmaceutical cost control is more effective when payers can negotiate volume rebates rather than relying solely on reference pricing for generics.
- Reforms combining multiple complementary instruments can contain spending growth while maintaining high-quality care.

### References, publication, and endorsements (selected items)
- WHO reports: World Health Statistics 2010; The World Health Report 2010—Health Systems: Improving Performance; Global Status Report on Noncommunicable Diseases.
- IMF publications: From Stimulus to Consolidation; Fiscal Monitor (September 2011).
- Selected academic citations included in the chapter and volume.
- Publication title: The Economics of Public Health Care Reform in Advanced and Emerging Economies.
- Editors: Benedict Clements, David Coady, and Sanjeev Gupta.
- Price display and ordering details provided in the PDF chapter.

*International Monetary Fund — Chapter 1, Part II summaries, Chapter 13 overview, and front-matter excerpts as presented in _healthcarepdf.*

### 1.    Health  care  reform.    2.  Health  care  reform—Developed  countries.    3.  Health  care

### Health care reform.

### Foreword — Fiscal and macroeconomic framing
- The mandate of the International Monetary Fund is primarily focused on macro-economic stability; this volume looks at health care reform through that lens, focusing primarily on macroeconomic stability and fiscal stability.
- Public spending on health care has been a key driver of aggregate increases in public spending over the past 40 years.
- Spending is projected to continue rising as a share of GDP unless reforms are undertaken to help break these trends.
- Projected increases in public health spending will take place at a time when most countries need to undertake large fiscal adjustments to help bring public debt ratios down to more prudent levels.
- Moderating the growth of age-related spending, including on health, will have to be a major element of the fiscal consolidation strategy in the advanced economies over the coming years.
- For many emerging economies, the outlook for health spending is better, and immediate pressures are expected to be more benign, but expanding access and improving quality will be difficult given limited fiscal space.
- The IMF’s Fiscal Affairs Department has prepared projections of future health care spending if current policies were maintained and estimates of the potential fiscal impact of various reform options to contain health spending growth.
- This book draws on a study presented to the IMF Executive Board in January 2011 and on papers prepared for IMF conferences in Paris in June 2011 and Tokyo in October 2011.
- An important objective of the IMF’s analytical work is to improve understanding of how feasible it would be to slow down the projected growth of health spending; this influences the composition of fiscal consolidation strategies.

### Structure and major themes (as provided in the table of contents)
- PART I: Trends and Outlook for Public Health Spending
  - "The Challenge of Health Care Reform in Advanced and Emerging Economies" (Sanjeev Gupta, Benedict Clements, and David Coady)
  - "Public Health Care Spending: Past Trends" (David Coady and Kenichiro Kashiwase)
  - "New Projections of Public Health Spending, 2010–50" (Mauricio Soto, Baoping Shang, and David Coady)
- PART II: The Role of the Private Sector in Health Care Financing and Delivery
  - "The Future of Public and Private Health Care Insurance in Asia" (Ludwig Kanzler and Alexander Ng)
  - "Perspective on the Appropriate Role of the Private Sector in Meeting Health Care Needs" (Tsung-Mei Cheng and Uwe E. Reinhardt)
- PART III: Cross-Country Studies
  - "Containing Public Health Spending: Lessons from Experiences of Advanced Economies" (Justin Tyson, Kenichiro Kashiwase, Mauricio Soto, and Benedict Clements)
  - "Health Reform Lessons from Experiences of Emerging Economies" (Eva Jenkner, Baoping Shang, and Benedict Clements)
  - "Health Financing Systems in East Asia and the Pacific: Early Successes and Current Challenges" (John C. Langenbrunner and Ajay Tandon)
  - "Measuring the Health Effects of Health Care Reform" (Jonathan Skinner and Catherine Suarez)
- PART IV: Country Case Studies — Advanced Economies
  - Public health expenditure reforms in Canada, Finland, Italy, the Netherlands, Sweden, the United Kingdom, and the United States (Justin Tyson and Izabela Karpowicz)
  - Challenges in reforming the Japanese health care system (Masako Ii)
  - Coverage expansion and cost containment in the Republic of Korea (Soonman Kwon)
  - Containing public health spending through market-based health reform in Germany (Michael Stolpe)
  - Taiwan Province of China’s experience with universal health care coverage (Tsung-Mei Cheng)
- PART V: Country Case Studies — Emerging Economies
  - Health care financing reform in India’s decentralized health care system (M. Govinda Rao and Mita Choudhury)
  - Evidence-based health financing reform in Thailand (Pongpisut Jongudomsuk et al.)
  - The challenge of health care reform in Estonia, Hungary, China, Chile, and Mexico (Baoping Shang and Eva Jenkner)

### Analytical emphases and methods (as indicated)
- Projection of future public health spending under maintained policies (including "New Projections of Public Health Spending, 2010–50").
- Estimation of potential fiscal impact of reform options to contain health spending growth.
- Cross-country analyses and case studies to identify potential policy responses to contain public health spending pressures in an efficient and equitable manner.
- Measuring health effects of health care reform (methodological focus noted in PART III).

### Policy trade-offs and objectives highlighted
- Health care reform involves complex trade-offs between ensuring access to high-quality health care and keeping public spending at fiscally affordable levels.
- Preferences regarding the role of the state in provision and financing of health care vary significantly across countries.
- The need to identify policy responses that contain spending pressures while remaining efficient and equitable is emphasized.

### Editorial and production notes (from front matter)
- Disclaimer: "The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members."
- Publication ordering/contact:
  - International Monetary Fund, Publication Services, P.O. Box 92780, Washington, DC 20090, U.S.A.
  - Tel. (202) 623-7430; Fax: (202) 623-7201
  - E-mail: Publications@imf.org
  - Internet: www.imfbookstore.org
- Acknowledgments note contributions from IMF staff, conference participants (European Commission, World Bank, OECD), and production management by Joanne Blake and Michael Harrup.

*International Monetary Fund — Foreword, table of contents, acknowledgments, and abbreviations as presented in the PDF chapter.*

### CHAPTER   1

### CHAPTER 1  The Challenge of Health Care Reform in Advanced and Emerging Economies

### Fundamental objectives of a health care system
- According to the World Health Organization (WHO), the three fundamental objectives are:
  - improving the health of the population it serves;
  - providing financial protection against the costs of ill-health; and
  - responding to people’s expectations.
- An implicit fourth objective: equity — minimizing differences among individuals and groups while maximizing average health.

### Rationale for reform and evidence on health and growth
- Significant improvements in health (life expectancy and access) have occurred (WHO, 2010a, 2010b).
- Microeconomic literature: health improvements increase worker productivity, education, and savings (Bloom and Canning, 2008; Basta, Soekirman, and Scrimshaw, 1979; Kalemli-Ozcan, Ryder, and Weil, 2000; Bloom, Canning, and Graham, 2003; Hurd, McFadden, and Gan, 1998; Alsan, Bloom, and Canning, 2006).
- Macroeconomic evidence is mixed: some studies find large, significant effects (Bloom and Canning, 2008; Bloom, Canning, and Sevilla, 2004; Sala-i-Martin, Doppelhofer, and Miller, 2004; Baldacci and others, 2008) while others find small or insignificant effects (Acemoglu, Johnson, and Robinson, 2003; Acemoglu and Johnson, 2007).
- Incomplete access, high and rising costs, and inefficiencies make health reform urgent in advanced and emerging market countries.

### Health reform challenges: overview

Incomplete Coverage
- Universal insurance coverage is essential to achieve objectives: pools risk and provides financial protection (WHO, 2010b; Card, Dobkin, and Maestas, 2009).
- Most advanced economies have universal insurance coverage, with the exception of the United States, which passed landmark legislation to achieve near-universal coverage in 2010.
- Emerging markets: mixed outcomes — most of emerging Europe and some emerging countries in Asia and Latin America have achieved universal coverage; others are still progressing.
- Options to achieve universal coverage: tax-financed system, social insurance system, private insurance, or mixed system (Gottret and Schieber, 2006).
- Main barrier: insufficient availability of resources (WHO, 2010b). Political commitment to allocate spending to basic services for the entire population is critical.

Health Inequalities
- Large inequalities between and within countries persist (CSDH, 2008; European Commission, 2010).
- Inequalities driven largely by socioeconomic factors: income, education, occupation (Joumard, Andre, and Nicq, 2010).
- No evidence of a trade-off between raising average health and improving equity — both can be achieved simultaneously.
- System features can exacerbate inequalities (e.g., informal payments disproportionately burden the poor) (Jakab, 2007).

Escalating Cost
- Since 1970:
  - total real per capita health spending has increased fourfold;
  - spending as a share of GDP has increased from 6 percent to 12 percent in advanced economies.
- In emerging economies: total health spending increased from below 3 percent of GDP to 5 percent.
- Primary drivers of spending growth: rising income, population aging, technological advancements; additional factors include the Baumol effect, health insurance coverage, and health policies (Newhouse, 1992; European Commission, 2010; CBO, 2010; Smith, Newhouse, and Freeland, 2009; Finkelstein, 2007).
- Disease profile shifts: transition from communicable diseases (CDs) to noncommunicable diseases (NCDs) in most advanced economies and some emerging economies.
  - NCDs are the leading causes of death globally and kill more people each year than all other causes combined.
  - Nearly 80 percent of NCD deaths occur in low- and middle-income countries (WHO, 2010c).
  - NCDs are largely caused by lifestyle risk factors: tobacco use, unhealthy diets, insufficient physical activity, harmful use of alcohol — often preventable.
  - Proven interventions: tobacco and alcohol tax increases, tobacco control measures, and salt reduction (WHO, 2010c).

Inefficiencies
- Large inefficiencies in health spending documented (Gupta and Verhoeven, 2001; Hauner, 2007; Mattina and Gunnarsson, 2007; Verhoeven, Gunnarsson, and Carcillo, 2007; Gupta and others, 2008; Joumard, Andre, and Nicq, 2010).
- Inefficiencies include allocative and productive inefficiencies, inappropriate and ineffective use of medicines, medical errors, suboptimal quality of care, waste, corruption, and fraud (WHO, 2010b).
- The WHO estimates that 20 to 40 percent of resources spent on health are wasted.
- OECD study: reducing inefficiencies in health systems by half in the OECD would raise life expectancy at birth, on average, by more than one year (Joumard, Andre, and Nicq, 2010).
  - By comparison, a 10 percent increase in health care spending per capita would increase life expectancy by only three to four months.

### The complexity of health reforms
- Trade-offs exist between preserving progress in health outcomes and controlling costs.
- Appropriate level of health care spending is debated (Savedoff, 2007). Other determinants of health: lifestyle, education, pollution, income (Joumard, Andre, and Nicq, 2010).
- Given inefficiencies, attacking inefficiencies may be more effective than raising spending.
- Market imperfections justify government involvement, but no single model works for all countries; interventions vary in mandates, regulations, provision, and financing (Musgrove, 1996).
- No unique “optimal” level of public health spending — differences reflect country preferences and constraints; efficiency of public provision remains essential.

### Health reform as a key fiscal challenge
- In advanced economies, public health spending has risen by about 4 percentage points of GDP since 1970 — about half the overall increase in noninterest public spending.
- Projections presented in this book: the net present value of spending increases over 2011–50 is close to 100 percent of today’s GDP.
- Emerging economies: lower health indicators and limited fiscal resources make reform important.
- Fiscal context: countries must undertake large fiscal adjustments to reduce public debt ratios after the global financial crisis.
  - A common gauge: change in the primary balance needed to bring public-debt-to-GDP ratio back to the precrisis median of about 60 percent of GDP.
  - Based on IMF Fiscal Monitor (IMF, 2011), the needed change in the primary balance would average about 8 percentage points of GDP.
- Fiscal consolidation will require revenue increases and expenditure reductions in advanced economies.
  - Stabilizing age-related-spending-to-GDP ratios, including by containing health spending growth, could be an important pillar of adjustment.
- Emerging economies:
  - Some have fiscal space to increase health spending (many in Asia and Latin America); challenge is to expand basic coverage fiscally sustainably while avoiding inefficiencies seen in advanced economies.
  - Others, where coverage is already extensive (much of emerging Europe), must enhance efficiency and limit increases as a share of GDP.

### Key policy questions for policymakers (as framed in the chapter)
- What are trends in spending across time periods and country groups? What has influenced these trends? How much does population aging account for the increase in spending?
- What is the outlook for public health spending over the next 20 years? Which countries face the largest public health spending pressures?
- What reforms could advanced economies consider to control public health spending growth efficiently and equitably? What potential savings could different reforms realize? How to ensure reforms do not conflict with equitable access?
- How can emerging markets expand coverage and improve outcomes without incurring high fiscal costs?

### Contributions and organization of the book (summary of Parts and Part I findings)
- The book analyzes developments in public health spending over the past 40 years and projects public health spending for 50 advanced economies and emerging markets for 2011–2050.
- Improvements over earlier studies: use of country-specific estimates for ECG (excess cost growth) and other country-specific drivers.
- Highlights:
  - Two-thirds of the rise in total health expenditures over recent decades is due to greater public-sector spending.
  - On average, approximately one-fourth of the increase in public-spending-to-GDP ratios is explained by aging; the remainder is due to ECG.
  - In emerging economies, public health spending rose from around 1½ to 2½ percent of GDP; private spending increased by about the same amount.
  - In advanced economies, projected increases in public health spending:
    - rise on average by 3 percentage points of GDP over the next 20 years;
    - rise by 6½ percentage points of GDP over the next 40 years.
    - Around one-third of that increase is due to population aging; the remaining two-thirds due to ECG.
    - Recent health care reforms in most countries are unlikely to alter long-term public health spending trends.
  - In emerging economies, projected increases:
    - public health spending projected to rise by 1 percentage point of GDP over the next 20 years (about one-third of the increase in advanced economies).
    - Aging would account for about half of the increase in expenditure.
    - Spending pressures expected to be higher in emerging Europe and Latin America than in emerging Asia.
    - Modest projected increases suggest rising health spending is unlikely to pose a heavy fiscal burden in emerging economies over the next 20 years; primary challenge is improving efficiency.

- Organization of the book:
  - Part I: Trends and Outlook for Public Health Spending.
  - Part II: Role of the private sector in financing and provision of health care.
  - Part III: Cross-country studies of reforms and lessons.
  - Part IV: Country case studies of advanced economies.
  - Part V: Country case studies of emerging economies.

*Chapter 1, _healthcarepdf - CHAPTER 1*

### Part II: The Role of the Private Sector in Health Care

### Part II: The Role of the Private Sector in Health Care

### Private sector role and private insurance in Asia (Chapter 4 summary)
- Despite market failures associated with health care, the private sector can still play an important role in achieving the objectives of a health care system; there is no optimal level of private involvement, and the role of the private sector in each country should depend on its preferences and constraints.
- In Asia, governments often take the primary responsibility for health care provision and private insurance only plays a minor role.
- Many Asian countries face the challenges of containing the growth of health care costs or expanding health insurance coverage in a fiscally sustainable manner, prompting reconsideration of the role of private insurance.
- Key questions considered:
  - Should private insurance replace public insurance or work in coordination with public insurance?
  - How would a larger role for private insurance affect health care costs and quality of care?
  - What regulations are needed to ensure the functioning of the private insurance market?
  - Could private insurance be involved in other aspects of health care, beyond provider reimbursement?
- Chapter conclusion highlights:
  - The role of private insurance in Asia is not expected to change dramatically, largely because of social beliefs.
  - If private insurance only served as a supplement to public coverage, the growth of private insurance could potentially improve quality of care, although for this to materialize would require a strong regulatory system.
  - There may be scope for private insurance to play a larger role in care coordination (for example, as disease management facilitators or provider network managers), which could potentially improve the functioning of the health care system.

### Private sector’s economic functions and constraints (Chapter 5 summary)
- Cheng and Reinhardt focus on the potential role of the private sector in achieving the economic functions and goals of a health system, including:
  - Financing and delivering health care.
  - Protecting individuals and families from catastrophic risks.
  - Maintaining and enhancing population health.
- The appropriate role of the private sector depends heavily on the “distributive social ethic” of the system.
- Market imperfections constraining private provision include asymmetric information, lack of transparency in pricing, and monopoly power.
- Two contrasting policy orientations:
  - If a country is willing to let health care be rationed by price and ability to pay, it can delegate most functions to market forces and use regulation to make private markets function honestly and efficiently.
  - If a country aspires to a roughly egalitarian health system (quality roughly the same regardless of socioeconomic status), government must step in and strictly monitor and regulate the private sector.
- Feasible mixed approach:
  - A distributive social ethic of social solidarity, implemented via government-run health insurance, can be combined with a mixed public-private health care system.
  - If social solidarity is important, private health insurers cannot properly perform the function of collecting premium contributions and risk pooling.
  - Nevertheless, private insurers can be incorporated to perform purchasing, claims processing, quality control, and cost control under competitive contracting.

### Cross-cutting empirical evidence and policy implications (transition to Parts III–V)
- The empirical evidence regarding the appropriate role of the private sector in financing and provision has been largely inconclusive; debate has proceeded mainly on the basis of ideology.
- The importance of evaluating reforms comprehensively, including effects on costs, health outcomes, equity, and financial protection, is emphasized as context for cross-country and country case studies that follow.

*Source: Part II: The Role of the Private Sector in Health Care, from the provided IMF PDF content.*

### Chapter  13,  by  Stolpe,  provides  an  overview  of  health  care  reforms  in

### Chapter 13 — Germany: Health Care Reforms since the 1980s (Stolpe)

### Overview and attribution of spending growth
- The increase in health care spending, as a share of GDP, is attributable to the country’s unification in 1990.
- A wide variety of policy approaches and complementary reform elements have been discussed and introduced in Germany, including budget caps, market mechanisms, and pecuniary incentives.

### Reform instruments and observed outcomes
- Budget caps
  - Finding: Budget caps can reduce spending for a short period of time, but are less effective in keeping spending low in the long run if the underlying causes of spending growth are not addressed.
- Market mechanisms
  - Finding: Market mechanisms require the correct alignment of incentives and behaviors to work effectively.
- Risk-adjustment schemes
  - Finding: The age- and sex-based risk adjustment scheme did not work well because of cream skimming by sickness funds.
  - Finding: The morbidity-based risk adjustment scheme, known as Morbi-RSA, has fared better; it has substantially reduced sickness funds’ incentives for risk selection, and even made some chronic diseases financially attractive for the risk pool.
  - Uncertainty: It remains to be seen whether Morbi-RSA will provide sufficient flexibility to adjust its payment schedule in response to new medical technologies that could change the relative costs and benefits of treating specific diseases.
- Providers and payment incentives
  - Finding: Sickness funds’ collective monopsony power vis-à-vis Germany’s regional physicians’ associations has long been effective in containing the cost of physician services in statutory health insurance (SHI).
  - Finding: DRGs have helped to contain the cost of hospital care and triggered important changes in hospitals’ competitive behaviors and management strategies.
- Pharmaceuticals
  - Finding: Reference prices for generics alone have had ambiguous effects.
  - Finding: Average prices of pharmaceuticals used in SHI began to decline substantially only after sickness funds were given the freedom to negotiate volume rebates.
- Net assessment
  - Finding: Despite some setbacks, reforms in Germany have been successful in containing spending growth while maintaining high quality health care.

### Key comparative and methodological points drawn from related chapters (contextual references retained from source)
- Taiwan Province of China (Chapter 14; Cheng)
  - Single-payer NHI introduced in 1995; achieved near universal coverage in less than a year.
  - Financing mix: government revenues, payroll taxes, household premium contributions, and cost sharing.
  - Cost sharing constitutes around 37 percent of total health care spending.
  - Administrative costs are 1.3 percent of the National Health Insurance (NHI) budget.
  - Challenges: financial stability of the NHI fund; difficulty raising contribution rates to finance spending increases.
  - Lessons: global budgets and government price control in a single-payer system can control total health care spending; single-payer supports equity and uniform health information systems; combining single-payer with private provision can promote choice and productivity; solid economic growth before, during, and after implementation aids funding.
  - Suggested reforms: build capacity for comparative effectiveness analysis and health technology assessments; move from fee-for-service payment to capitation payments; address non-communicable diseases and long-term care.
- India (Chapter 15; Rao and Choudhury)
  - National Rural Health Mission would increase health care spending by 1 to 2 percent of GDP between 2005 and 2012.
  - Program weaknesses: allocation method did not adequately account for state needs; unclear matching-fund requirements for states; failure to execute planned increases due to states’ inability to make matching contributions.
  - Outcome: impact on health spending and outcomes has been negligible.
  - Rashtriya Swasthya Bima Yojana covers selected hospitalization and daycare expenses for the population below poverty line; program participation has been low at less than 50 percent.
  - Fiscal constraint finding: econometric analysis suggests that states significantly reduced their own health expenditures when they received transfers from the central government, with an elasticity close to one.
- Other country highlights (Chapter 17; Shang and Jenkner)
  - China: achieved good health outcomes with relatively low health care spending over the last 60 years; recent steps to expand coverage; remaining challenges include high out-of-pocket spending, wide inequalities, and inefficient use of resources. Incremental approach can be effective in expanding coverage and access.
  - Chile: almost universal coverage via mandatory social security and explicit guarantees; mixed financing and provision; system is de facto segmented with inequity between public and private quality of care. Success attributed to strong fiscal and economic performance, efficient institutions, and political consensus.
  - Mexico: universal coverage not yet achieved; system segmented across many public and private insurers and providers, leading to high fragmentation, inequality of access, and high administrative costs. Out-of-pocket (OOP) spending accounts for half of total health outlays. Reform aim: reduce fragmentation and achieve universal coverage via affordable family insurance (Seguro Popular).
  - Estonia and Hungary: post-transition reforms emphasized compulsory social health insurance, primary care reform, hospital-sector reduction, and reliance on public financing; challenges include shortages of health professionals, cost pressures, high lifestyle-related risks, and inefficient use of resources that underscore the importance of appropriate provider payment incentives.

### Lessons and policy implications from Germany’s experience
- Short-term fiscal tools (e.g., budget caps) are useful for temporary control but insufficient without addressing structural drivers of spending growth.
- Effective market mechanisms depend critically on aligning incentives for payers, providers, and purchasers.
- Risk-adjustment design matters: morbidity-based approaches (Morbi-RSA) can reduce incentives for cream skimming better than age- and sex-based schemes.
- Collective purchasing/monopsony power of sickness funds can contain physician-service costs.
- Payment reforms such as DRGs can contain hospital costs and reshape hospital management and competition.
- Pharmaceutical cost control is more effective when payers can negotiate volume rebates, not solely through reference pricing for generics.
- Reforms can contain spending growth while maintaining high-quality care when multiple complementary instruments are implemented.

*Chapter 13 (Stolpe) overview as presented in the source PDF chapter.*

### Introduction of Medicare,”  Quarterly Journal of Economics , Vol. 122, No. 1, pp. 1–37.

### _healthcarepdf - Introduction of Medicare,”  Quarterly Journal of Economics , Vol. 122, No. 1, pp. 1–37.

### References and cited works
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### Publication, ordering, and product information
- Title: The Economics of Public Health Care Reform in Advanced and Emerging Economies
- Editors: Benedict Clements, David Coady, and Sanjeev Gupta
- Price: US$45 and US$31.50 (as presented in two-column pricing display)
- Discount code for 30% discount: SCHPEA30
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### Endorsements and excerpts
- Dana P. Goldman: “This book is a must read for anyone interested in understanding the extent of the global health crisis, and—more importantly—what nations can do about it.”
- Barry P. Bosworth: “This volume includes projections of future trends in health care costs for countries at widely varying stages of development and extensive evaluations of their past experiences with health reforms.”
- Joseph P. Newhouse: “The book is an excellent compendium of current thinking.”
- Peter C. Smith: “This important book brings together evidence from many of the world’s leading experts to present reform experience from a wide range of settings, and draw lessons for future policy.”
- David M. Cutler: “The appropriate way to balance the goals of equality, efficiency, and affordability is a subject of intense debate. This volume steps into this arena with reasoned analysis and clear, cogent analytics. A major accomplishment.”

*Source: _healthcarepdf - Introduction of Medicare,”  Quarterly Journal of Economics , Vol. 122, No. 1, pp. 1–37.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/books/2012/health/_healthcarepdf.pdf_