## Executive Summary (content unit _122810)

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---

### Key findings and context
- Health care reform involves complex trade-offs between policy goals (such as ensuring access and consistency with overall fiscal constraints) and divergent country preferences over the role of the state in provision and financing.
- Since 1970, public health care spending has risen from 3 to 7 percent of GDP in the advanced economies, and has been by far the most important driver of total public spending increases.
- In advanced economies, real per capita total health spending has increased fourfold since 1970, and total health spending as a share of GDP rose from 6 percent to almost 12 percent.
- Two-thirds of the increase in total health spending in advanced economies was due to greater public health spending; the public share of total health spending rose from 55 percent to 60 percent.
- In emerging economies, total health spending rose from below 3 percent of GDP to about 5 percent, and public spending on health increased from around 1½ to 2½ percent of GDP.

### Projections of public health spending
- Advanced economies:
  - Public health care spending is projected to rise by an additional 3 percentage points of GDP over the next 20 years.
  - Public health care spending is projected to rise by 6½ percentage points of GDP over the next 40 years.
  - In net present value terms, these spending increases over 2011–50 would be close to 100 percent of GDP.
- Emerging economies:
  - Public health outlays are projected to rise by 1 percentage point of GDP, with more sizable increases in certain regions (such as Europe and Latin America).
- Fiscal adjustment context:
  - To lower the general government debt-to-GDP ratio to 60 percent by 2030, advanced economies would have to improve their cyclically adjusted primary balance by some 8 percentage points of GDP, on average, during 2011–30.

### Drivers and past patterns
- Public health spending in advanced countries has shown episodes of rapid growth followed by containment:
  - Rapid increase during 1971–75 (1 percentage point of GDP) reflected expansion of health insurance coverage.
  - From 1975 to 1990, public health spending increased by less than 1 percentage point of GDP.
  - Spending accelerated in the early 1990s, then contained in the late 1990s; growth picked up after 2000 with outlays rising one percentage point (to 7 percent of GDP) by 2008.
- Key drivers include technological progress and aging; projections incorporate country-specific system features and pressures from these factors.

### Policy options to contain spending in advanced economies
- Four major policy options (with examples from past experience):
  - Budget caps and central oversight of budget allocations:
    - Italy, Japan, and Sweden have greater reliance on budget caps and are among countries with the lowest public spending increases.
  - Reforms that strengthen market mechanisms by introducing competition and choice:
    - Germany and Japan score relatively high on market mechanisms and are among countries with low spending growth historically.
  - Strong incentives for provision of cost-effective care, including case-based payment systems:
    - Case-based payments have been used with relative success in Germany and Italy.
  - Greater reliance on private financing for services outside the public package:
    - Australia, Canada, and France rely significantly on private insurance for services not covered by the public package.
- Equity safeguard:
  - In implementing reforms, basic health services for the poor should be maintained because they are targeted and effective, serving both equity and efficiency objectives.

---

### Drivers of rising public health spending and historical patterns

### Demand- and supply-side drivers
- Demand-side:
  - Health care spending tends to rise as a share of GDP as countries develop.
  - Elderly people consume on average more health services than their younger counterparts.
- Supply-side:
  - Technological change expanded diagnostic and treatment scope (examples: diffusion of angioplasty; use of MRIs instead of x-rays).
  - Technological improvements have increased the cost of medical services, reflecting improvements in quality.
- Productivity/Beaumol effect:
  - Relatively low productivity growth in health services versus other sectors has driven costs upward.

### Decomposition and ECG
- On average, approximately one-fourth of the increase in public spending-to-GDP ratios is explained by changes in the age distribution of the population (“aging”).
- The remainder, called excess cost growth (ECG), is attributable to non-demographic factors including rising incomes, technological advances, the Baumol effect, and health policies and institutions.
- Positive ECG does not imply costs exceeded benefits; technological advancements have yielded substantial health improvements.

### Historical cross-country statistics (advanced economies)
- 1980 comparison: gap between lowest (Greece) and highest (Sweden) was 5 percentage points of GDP.
- 2008 levels range: 5½ percent of GDP (Australia) to 8.7 percent (France).
- Averages and changes:
  - Average 1980: 5.3
  - Average 2008: 7.0
  - Average change: 1.7
- Correlation coefficient between increases in the spending ratio and the initial ratio: -0.8.
- Largest increases (percentage points of GDP, 1980–2008): United States 3.8; Portugal 3.4; New Zealand 2.7.
- Smallest increases: Sweden -0.7; Ireland 0.0; Denmark 0.1.
- Since 2000, countries with increases ≥ 1 percentage point include: Canada, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, New Zealand, Luxembourg, the United Kingdom, and the United States.
- Countries with smallest increases (0.2 percentage point of GDP or less): Czech Republic, Germany, Norway.

### Emerging economies: levels and changes
- 1971–95: public health spending increased by ½ percentage point of GDP, to 2 percent.
- Following decade: another ½ percentage point increase.
- Averages (1995–2007):
  - Average 1995: 2.9
  - Average 2007: 3.2
  - Average change: 0.3
- Regional differences: higher public spending ratios in emerging Europe and Latin America than emerging Asia.
- Largest increases since 1995 (1–1½ percentage points): Romania, Saudi Arabia, Thailand, Turkey.
- Countries where spending ratios fell: Estonia, Hungary, India, Latvia, Russia, Ukraine.

---

### Projections, fiscal burden, and recent reforms

### Advanced economies — projections and decomposition
- Aggregate projection: public health spending in advanced economies projected to rise on average by 3 percentage points of GDP over the next 20 years.
- Decomposition (20-year horizon):
  - Around one-third of the increase due to population aging.
  - Remaining two-thirds due to ECG (technological change, income growth, Baumol effect, policies).

### Net present value fiscal burden
- Net present value of projected increases in public health spending during 2011–30: 26 percent of today’s GDP.
- Net present value over 2011–50: 98 percent of GDP (staff’s longer-term projection of 6½ percentage points of GDP increase over this period).
- Estimates assume a discount rate of 1 percent.

### Recent reforms in advanced economies (selected)
- United States:
  - 2010 reform expands coverage; coverage expected to rise by 11 percentage points to reach 94 percent by 2019.
  - Reform raises Medicaid eligibility to 133 percent of the poverty line; subsidies for individuals between 133 and 400 percent of the poverty line.
  - CBO projections: spending in 2030 would be 0.2 percent of GDP lower than forecast earlier due to reforms.
  - Reform expected to reduce the budget deficit by an average of 0.1 percent of GDP per year during 2010–19 and ½ percentage point of GDP per year over 2020–29 (taking into account revenue measures).
- United Kingdom:
  - Real health spending budgeted to rise by less than ½ percentage point over next four years as part of fiscal adjustment.
  - Government committed to limit growth of real health spending to a cumulative ½ percentage point in 2011–15, projected to reduce spending by ¾ percentage point of GDP by 2015.
  - Consideration of plan to reduce administrative costs by 45 percent, with savings reinvested in patient care.
- Germany:
  - Reversal of reduced health care contribution approved in November 2010; spending reductions expected to be small (0.1 percentage point of GDP).
  - Reform aims at saving 0.4 percent of GDP.
- Pharmaceuticals:
  - Pharmaceuticals constitute about 15 percent of public health spending (OECD).
  - Cost-containment steps (example: Ireland) can yield short-term savings (example: 0.5 percent of GDP in Ireland) but are unlikely to have major long-term effect given the modest share of pharmaceuticals.

### Emerging economies — projected increases (2011–30)
- Aggregate: public health spending in emerging economies projected to rise by 1 percentage point of GDP over next 20 years (weighted average = 1.0; unweighted average = 1.1).
- Regional patterns:
  - Emerging Europe and Latin America: on average rise by 1½ percentage point of GDP; all countries projected to raise spending by at least 1 percentage point.
  - Emerging Asia: increases about half this amount.
- Aging accounts for about ½ percentage point of GDP increase in emerging economies; largest effects in Brazil, Chile, Poland.
- Implication: modest projected increases suggest rising health spending is unlikely to pose heavy fiscal burden in emerging economies over next 20 years; primary challenge is to improve efficiency.

---

### Reform typology, evidence, and estimated effects

### Typology of reforms
- Macro-level controls: budget caps, supply constraints, price controls.
- Micro-level reforms: public management and coordination, contracting (salaries/budgets, case-based payments), prospective budgets.
- Market mechanisms: separation of purchaser/provider, patient choice, insurer competition, private provision.
- Demand-side reforms: patient cost-sharing, supplementary private insurance, tax treatment of private insurance.

### Econometric estimates of reform impacts (one-unit change effects on ECG; effects shown relative to 1.0 average ECG)
- Extending market mechanisms: -0.50
- Improving public sector management and coordination: -0.30
- Strengthening budget caps: -0.24
- Price controls: +0.11 (associated with higher ECG)
- Combined: one unit improvement in budget constraint index and central government oversight reduces ECG by ¼ percentage point.
- Event studies: in 19 episodes where a budget cap was implemented, increases in spending-to-GDP ratios slowed substantially versus non-reforming countries.

### Micro- and macro-experience and caveats
- Budget caps and central oversight effective in reducing spending growth but may cause longer waiting times and inequitable access; caps often based on historical costs and provide limited efficiency incentive.
- Supply controls lower ECG only slightly (less than 0.1 percentage point); price controls can be counterproductive due to supplier responses (raising volumes or shifting patients).
- Case-based payments and market mechanisms have contained growth in many instances but require careful design (e.g., Sweden saw initial increases in volume after competition plus DRG introduction; countermeasures included reducing DRG rates and penalties).
- Demand-side reforms such as higher copayments show short-term slowing of growth (about a year) but effects may reverse; raising copayments could affect outpatient spending (about 30 percent of spending).
- Health information technology (HIT) and prevention offer additional efficiency potential; HIT savings example: potential 0.2 percent of GDP.

### Simulated aggregate impacts to 2030 (raising countries to mean index scores)
- Average impacts on public health spending to GDP ratios in 2030 (decrease relative to baseline, percent of GDP):
  - Market mechanisms: 0.5 percentage points of GDP.
  - Budget caps: 0.25 percentage points of GDP.
  - Demand-side reforms: -0.10 percentage points of GDP.
  - Supply constraints: -0.05 percentage points of GDP.
- Important caveats:
  - Savings subject to uncertainty; simultaneous reforms may be undesirable or counterproductive.
  - Some reforms complementary; individual estimates may understate combined effects.

---

### Country group findings and policy implications

### Determinants of varying success
- Italy, Japan, Sweden: above-average scores on budget caps and central oversight; projected to experience lowest ECG.
- Germany and Japan: high scores on market mechanisms; associated with low excess cost growth.
- Countries with low scores across indices (e.g., Luxembourg, Greece) have scope for reform; Switzerland and United States score low on budget caps; Portugal and United Kingdom below average on market mechanisms.

### Country-group recommendations (selected)
- Countries relying on market mechanisms (Canada, Czech Republic, France, Germany, Japan, Slovakia): marginal reforms may suffice but demographics may require bolder action.
- Mixed systems (Australia, Austria, Belgium, Netherlands): tighten budget constraints, strengthen gatekeeping, increase cost-sharing.
- Countries with macro-level weaknesses (Greece, Korea, Luxembourg, Switzerland, United States): focus on strengthening budget constraints, workforce/equipment regulation, gatekeeping.
- Predominantly public systems (Denmark, Ireland, Italy, Sweden): improve priority setting, monitor public health package composition.
- Higher-ECG group (Iceland, Finland, Portugal, New Zealand, United Kingdom): strengthen supply constraints and extend private insurance for over-the-basic care and provider choice.

### Sufficiency of reforms and additional fiscal measures
- Simulated reforms may still fall short of stabilizing public spending-to-GDP ratios at current levels for some countries.
- If reform savings insufficient, additional cuts in other spending or revenue increases needed.
- Additional options:
  - Curtailing tax expenditures on health insurance (tax expenditures about 2 percent of GDP) could yield substantial savings; recent proposals could yield an additional 0.5 percentage points of GDP annually.
  - Combined reforms (econometric simulated reforms plus tax changes and HIT) could reduce spending (including tax expenditures) by about 2 percentage points of GDP; remaining projected increase would still be 3 percentage points of GDP.

### Health outcomes and role of the state
- Evidence indicates many cost-reducing reforms do not necessarily harm health outcomes broadly, but monitoring is required:
  - Managed care expansion in U.S. 1990s reduced spending growth without large deleterious health outcome impacts.
  - DRG evidence mixed; most studies find no evidence of adverse effects.
  - Greater cost-sharing associated with worse outcomes for individuals in poor health.
- Policy implication: maintain basic services for the poor and design mitigation (income-related cost-sharing, exemptions, value-based benefit design) when implementing demand-side reforms.

---

### Emerging economies: strategies, fiscal space, and financing choices

### Regional challenges and priorities
- Emerging Europe: limited fiscal space; emphasize efficiency-enhancing reforms (strengthen incentives for cost-effective care).
- Latin America and Asia: scope to expand coverage but should restrict benefit packages to essential services until financing capacity increases.
- Priority shifts: prevention of infectious diseases and activities benefiting poorer rural areas; greater incentives for primary and preventive care.

### Successful low-cost expansions and lessons
- Thailand and Chile expanded basic coverage at low fiscal cost; Chile used explicit annual budgetary ceilings and elimination of direct budget support to public providers.
- Korea and Taiwan Province of China expanded universal coverage with a mix of public and private roles; Korea’s private spending about 45 percent of total health spending.

### Financing choices: tax-financed vs social insurance (guidance)
- Prefer tax-financed when labor market informality is large and objective is universal coverage of a basic package; Thailand cited as example.
- Social insurance effective when informality is low; expanding social insurance requires formalization and targeted fiscal transfers in many cases.
- Many countries use hybrid systems; choice should fit socioeconomic and institutional context.

### Fiscal space and illustrative scenarios
- Table of 2007 indicators (simple averages) — selected figures:
  - GDP per capita: Advanced 36,567; All 11,981; Europe 14,408; Other Emerging 10,542.
  - Total health expenditures per capita: Advanced 3,351; All 728; Europe 935; Other Emerging 612.
  - Public health expenditures % of GDP: Advanced 6.7; All 3.2; Europe 4.2; Other Emerging 2.5.
  - % of population above 60: Advanced 21.2; All 13.5; Europe 21.3; Other Emerging 9.0.
  - Life expectancy: Advanced 80.1; All 71.0; Europe 72.6; Other Emerging 69.5.
  - Infant mortality: Advanced 3.7; All 18.9; Europe 8.0; Other Emerging 27.0.
- Illustrative fiscal adjustment: assessed vis-à-vis reducing public debt to 40 percent of GDP by 2030 (adjustment measured as change in cyclically adjusted primary balance required).
  - No fiscal adjustment needed for illustrative target in Brazil, Estonia.
  - High adjustment needs with above-average projected health spending increases: Bulgaria, Latvia, Lithuania, Romania, Poland.
  - Emerging Asia: adjustment needs generally lower; Indonesia and Philippines conducive to expanding public health spending; India and Malaysia less room.

### Micro-level reforms and emerging Europe
- Due to limited fiscal space, emerging Europe should rely on micro-level reforms to improve outcomes rather than large spending increases.
- Examples:
  - Estonia and Hungary implemented single insurance funds and global budgets to contain spending.
  - Hungary’s primary care capitation-only payment leads to excessive referrals; Estonia uses mixed payment methods to promote preventive care.

### Public health spending and household consumption (selected findings)
- Precautionary savings important in emerging Asia; Chinese households facing high health risk save about 20 percentage points more.
- Average public health expenditure in 2007 for six emerging Asia economies: about 1½ percent of GDP; advanced economies: 7½ percent.
- Baldacci and others (2010): a 1 percent of GDP increase in public health spending in China would raise consumption by 1.3 percent.
- Cross-country estimates imply a 1 percent of GDP increase in public health spending for the six emerging Asia countries would raise household consumption by more than 1 percent of GDP on average.

---

### Methodology, ECG estimates, and projection scenarios

### ECG definition and econometric framework
- ECG defined as excess growth of real per capita health expenditures over growth in real per capita GDP after controlling for demographic change.
- Main regression uses first differences of log series; country fixed-effects model based on 1980–2008 for advanced economies.
- Average ECG from model about 1.0 percent (weighted average basis, Appendix Table 3).

### Advanced economies — ECG estimates (Appendix Table 3 entries preserved)
- Country-specific ECG values (columns correspond to estimation variants; values listed as shown):
  - Australia 1.5 1.6 0.9 1.8
  - Austria 1.1 1.0 1.0 1.3
  - Belgium 1.0 1.1 0.8 1.4
  - Canada 1.3 0.9 0.6 1.4
  - Czech Republic -0.5 -1.2 -0.9 0.3
  - Denmark 0.0 1.3 0.1 1.2
  - Finland 1.5 0.7 1.1 1.7
  - France 1.4 0.8 0.3 0.3
  - Germany -0.1 -0.1 -0.1 -0.3
  - Greece 1.9 2.2 1.6 3.5
  - Iceland 1.1 0.6 1.1 2.5
  - Ireland 0.1 2.6 0.0 3.7
  - Italy 1.2 2.7 -0.1 1.1
  - Japan 1.1 1.3 -0.7 -0.8
  - Korea 5.5 7.3 3.5 4.1
  - Luxembourg 1.3 2.4 2.4 2.5
  - Netherlands 1.3 1.8 0.9 1.9
  - New Zealand 1.5 2.8 1.0 2.9
  - Norway 0.6 0.2 0.7 0.6
  - Portugal 2.1 2.4 1.4 1.9
  - Slovakia 0.2 0.2 0.3 1.6
  - Slovenia 0.2 0.2 -0.1 0.9
  - Spain 1.3 0.8 0.6 1.1
  - Sweden -0.3 0.8 -0.4 1.8
  - Switzerland 2.3 1.6 1.9 1.8
  - United Kingdom 1.5 2.2 1.7 3.1
  - United States 2.4 1.4 2.3 1.8
  - Average Weighted 1.7 1.5 1.2 1.3
  - Average Unweighted 1.2 1.5 0.8 1.7
- ECG estimates for projections were capped between zero and 2.0 percent.

### Emerging economies — ECG estimates (Appendix Table 4 entries preserved)
- Country-specific values (two columns: “Difference between public health spending growth and GDP growth” and “Fixed effects”):
  - Argentina 0.2 -1.2
  - Brazil 1.7 -1.3
  - Bulgaria 1.0 -1.6
  - China 0.6 -3.8
  - Chile 1.0 -2.2
  - Estonia -2.5 -6.6
  - Hungary -1.3 -3.0
  - India 0.0 -2.2
  - Indonesia 3.8 0.2
  - Latvia -0.8 -5.1
  - Lithuania 0.7 -3.5
  - Malaysia 2.7 0.0
  - Mexico 1.0 -2.3
  - Pakistan 2.1 1.0
  - Philippines 0.0 -1.8
  - Poland 1.1 -2.7
  - Romania 3.6 0.3
  - Russia -1.1 -4.9
  - Saudi Arabia 4.7 4.6
  - South Africa 0.6 -2.5
  - Thailand 4.3 -0.3
  - Turkey 3.1 0.4
  - Ukraine -0.3 -3.8
  - Average: Weighted 0.9 -2.4
  - Average: Unweighted 1.1 -1.8
- Due to variability and data limitations, projections for emerging economies assume a constant ECG of 1 percent.

### Projection scenarios (Appendix Table 5 structure)
- Table projects public health spending (Percent of GDP) for 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050 under Baseline, Optimistic, Pessimistic scenarios.
- Optimistic (pessimistic) scenario assumes ECG 0.5 percentage points lower (higher) than baseline.
- Selected aggregated series lines as reported:
  - Average: 5.4 5.9 6.4 7.0 7.6 8.3 8.9 9.6 10.3 2.2 1.5 3.0
  - Advanced: 7.3 7.9 8.7 9.5 10.4 11.2 12.1 13.0 13.9 3.0 2.1 4.1
  - Emerging: 2.5 2.7 2.9 3.2 3.5 3.8 4.1 4.4 4.7 1.0 0.6 1.3
- Illustrative country-level entries (examples preserved from table):
  - United States: 7.6 8.6 9.8 11.2 12.7 14.2 15.7 17.3 18.9 5.1 3.9 6.4
  - Japan: 6.8 7.1 7.3 7.6 7.8 7.9 8.0 8.1 8.2 1.0 0.2 1.8
  - Germany: 8.1 8.4 8.6 8.8 9.0 9.3 9.4 9.6 9.6 0.9 0.0 1.9
  - China: 1.9 2.1 2.3 2.5 2.8 3.1 3.3 3.6 3.9 0.8 0.6 1.1

---

### Implementation lessons and monitoring
- Continuous monitoring and refinement needed as providers and patients adapt.
- Health information technology can improve adherence to guidelines, disease surveillance, reduce medication errors, and decrease duplication; full benefits not yet exploited.
- Protective measures:
  - Maintain access to a basket of basic health care services for the poor during reforms.
  - Preserve mean-tested programs and universal access pillars while implementing cost-containment measures.

*Italic: Source — Executive Summary and selected chapters, IMF staff paper (content unit _122810) contained in the provided PDF chapter/section.*

### Executive Summary ......................................................................................................

### Executive Summary

### Key findings and context
- Health care reform involves complex trade-offs between policy goals (such as ensuring access and consistency with overall fiscal constraints) and divergent country preferences over the role of the state in provision and financing.
- Since 1970, public health care spending has risen from 3 to 7 percent of GDP in the advanced economies, and has been by far the most important driver of total public spending increases.
- In advanced economies, real per capita total health spending has increased fourfold since 1970, and total health spending as a share of GDP rose from 6 percent to almost 12 percent.
- Two-thirds of the increase in total health spending in advanced economies was due to greater public health spending; the public share of total health spending rose from 55 percent to 60 percent.
- In emerging economies, total health spending rose from below 3 percent of GDP to about 5 percent, and public spending on health increased from around 1½ to 2½ percent of GDP.

### Projections of public health spending
- Advanced economies:
  - Public health care spending is projected to rise by an additional 3 percentage points of GDP over the next 20 years.
  - Public health care spending is projected to rise by 6½ percentage points of GDP over the next 40 years.
  - In net present value terms, these spending increases over 2011–50 would be close to 100 percent of GDP.
- Emerging economies:
  - Public health outlays are projected to rise by 1 percentage point of GDP, with more sizable increases in certain regions (such as Europe and Latin America).
- Fiscal adjustment context:
  - To lower the general government debt-to-GDP ratio to 60 percent by 2030, advanced economies would have to improve their cyclically adjusted primary balance by some 8 percentage points of GDP, on average, during 2011–30.

### Drivers and past patterns
- Public health spending in advanced countries has shown episodes of rapid growth followed by containment:
  - Rapid increase during 1971–75 (1 percentage point of GDP) reflected expansion of health insurance coverage.
  - From 1975 to 1990, public health spending increased by less than 1 percentage point of GDP.
  - Spending accelerated in the early 1990s, then contained in the late 1990s; growth picked up after 2000 with outlays rising one percentage point (to 7 percent of GDP) by 2008.
- Key drivers include technological progress and aging; projections incorporate country-specific system features and pressures from these factors.

### Policy options to contain spending in advanced economies
- Four major policy options, with country examples from past experience:
  - Budget caps and central oversight of budget allocations:
    - Italy, Japan, and Sweden have greater reliance on budget caps and are among countries with the lowest public spending increases.
  - Reforms that strengthen market mechanisms by introducing competition and choice:
    - Germany and Japan score relatively high on market mechanisms and are among countries with low spending growth historically.
  - Strong incentives for provision of cost-effective care, including case-based payment systems:
    - Case-based payments have been used with relative success in Germany and Italy.
  - Greater reliance on private financing for services outside the public package:
    - Australia, Canada, and France rely significantly on private insurance for services not covered by the public package.
- Estimated effect of adopting these features:
  - Enhancing these health system features in countries currently lagging could reduce the projected increase in public spending-to-GDP ratios, but in some countries savings may not be large enough to avoid still sizable increases.
  - If projected increases cannot be fully contained, deeper cuts in other spending areas or additional revenue increases may be required to support fiscal adjustment.
- Equity safeguard:
  - In implementing reforms, basic health services for the poor should be maintained because they are targeted and effective, serving both equity and efficiency objectives.

### Implications and strategies for emerging economies
- Heterogeneous challenges by region:
  - Emerging Europe: more limited fiscal space; reliance on efficiency-enhancing reforms to improve health outcomes (e.g., strengthen incentives for cost-effective medical care).
  - Latin America and Asia: lower coverage levels and more scope to expand spending; need to restrict benefit packages to the most essential health services until financing capacity increases.
- Successful low-cost expansion examples:
  - Thailand and Chile expanded basic coverage at low fiscal cost and offer lessons for other countries.
- Reform priorities in emerging economies:
  - Shift spending composition toward prevention of infectious diseases and activities benefiting poorer rural areas.
  - Provide greater financial incentives for provision of cost-effective care, including primary and preventive care.
  - Restrict benefit packages to essential services to maintain fiscal sustainability while expanding coverage.

### Purpose and contribution of the paper
- Presents new projections for public health care spending in advanced and emerging economies that use country-specific estimates and take into account health system features, technological progress, and aging.
- Quantifies effects of specific health reforms on growth of public health spending using a range of analytical approaches, including country case studies.
- Aims to identify differences in public health spending pressures across countries and provide options to contain these pressures through efficiency gains.

*Source: Executive Summary of the IMF paper (team led by B. Clements and D. Coady).*

### 9.      The literature has identified income, aging, technology, and health policies as the

### 9. The literature has identified income, aging, technology, and health policies as the

### Drivers of rising public health spending
- Demand-side factors:
  - Health care spending tends to rise as a share of GDP as countries develop.
  - Elderly people consume on average more health services than their younger counterparts.
- Supply-side factors:
  - Technological change has expanded the scope of what is medically possible by improving treatments and diagnostics (examples in source: diffusion of angioplasty; use of MRIs instead of x-rays).
  - Technological improvements have increased the cost of medical services, reflecting improvements in quality.
- Productivity and the Baumol effect:
  - Health costs have been driven upward by the relatively low productivity growth of services relative to other sectors of the economy (the so-called Baumol effect).
- Decomposition of drivers:
  - On average, approximately one-fourth of the increase in public spending-to-GDP ratios is explained by changes in the age distribution of the population (“aging”).
  - The remainder, called excess cost growth (ECG), is attributable to the combined effect of non-demographic factors including rising incomes, technological advances, the Baumol effect, and health policies and institutions.
  - Positive ECG should not be interpreted to mean costs have exceeded benefits; technological advancements—the main driver of higher health care costs—have yielded enormous improvements in health status and well-being (Cutler and McClellan, 2001).

### Historical cross-country patterns and convergence (advanced economies)
- Public spending as a share of GDP increased in virtually all advanced countries over the last three decades.
- 1980 comparison:
  - Gap between lowest (Greece) and highest (Sweden) was 5 percentage points of GDP.
- 2008 levels (range):
  - 5½ percent of GDP (Australia) to 8.7 percent (France).
- Averages and changes:
  - Average 1980: 5.3
  - Average 2008: 7.0
  - Average change: 1.7
- Correlation:
  - Correlation coefficient between increases in the spending ratio and the initial ratio is -0.8 (Figure 2, right panel), indicating faster increases where initial spending was low.
- Largest increases (percentage points of GDP, 1980–2008):
  - United States: 3.8 percentage points
  - Portugal: 3.4 percentage points
  - New Zealand: 2.7 percentage points
- Smallest increases:
  - Sweden: -0.7 percentage points
  - Ireland: zero percentage points
  - Denmark: 0.1 percentage points
- Since 2000, countries with increases ≥ 1 percentage point:
  - Canada, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, New Zealand, Luxembourg, the United Kingdom, and the United States.
- Countries with the smallest increases (0.2 percentage point of GDP or less):
  - Czech Republic, Germany, and Norway.
- Explanation for convergence:
  - Low correlation between initial per capita GDP in 1980 and the increase in spending ratios over 1980–2008 indicates income convergence was not a key factor.
  - Slow changes in relative age structures also unlikely to explain convergence.
  - Regression analysis (controlling for income and demographics) indicates significantly higher spending growth for countries with below-mean spending to GDP ratios.
  - Convergence appears driven by “imitation” effects—borrowing features of public health systems from other countries—entailing changes in health institutions and policies and factors that determine the diffusion of technology.

### Emerging economies: levels, changes, and priorities
- Historical increases:
  - During 1971–95, public health spending increased by ½ percentage point of GDP, to 2 percent.
  - In the following decade, spending accelerated with an additional ½ percentage point of GDP.
- Averages and changes (emerging economies, 1995–2007):
  - Average 1995: 2.9
  - Average 2007: 3.2
  - Average change: 0.3
- Regional differences:
  - Public spending ratios are substantially higher in emerging Europe and Latin America than emerging Asia.
  - No evidence of convergence in ratios across emerging economies over time.
- Largest increases since 1995 (1–1½ percentage points of GDP):
  - Romania, Saudi Arabia, Thailand, and Turkey.
- Countries where spending ratios have fallen:
  - Estonia, Hungary, India, Latvia, Russia, and Ukraine.
- Since 2000, only six emerging economies had increases of more than ½ percentage point:
  - Brazil, Bulgaria, Chile, Poland, Thailand, and Ukraine.
- Priority and allocation issues:
  - Between 2000 and 2007, revenue to GDP ratios rose in emerging economies in the sample (excluding Turkey) by 3½ percentage points of GDP, while public health outlays rose by about ½ percentage point.
  - Developing economies have allocated half as much spending to health as to education during 1987–2007.
  - Demand-side factors keeping spending low include lower per capita incomes and different demographics (lower age-dependency ratios).
  - Many emerging economies have not yet completed the shift from infectious to chronic diseases (cancer, diabetes, heart disease) that raises health care costs.

### Health outcomes and inefficiencies
- Advanced economies:
  - Average life expectancy at birth: about 80 years; range from 74 years (Slovak Republic) to 83 years (Japan).
  - Infant mortality rates range from three deaths per thousand or less (Iceland, Luxembourg, Sweden) to more than five (Canada, Slovak Republic, United States).
- Emerging economies:
  - Average life expectancy: 71 years (about nine years less than advanced economies).
  - Within emerging economies, life expectancy ranges from 52 years (South Africa) to 79 years (Chile).
- Efficiency of public health spending:
  - Inefficiencies are large; improving efficiency can be more critical than increasing spending.
  - Cutting the efficiency gap of OECD countries in half would increase life expectancy by over one year.
  - Achieving the same increase through higher spending would require an increase of over 30 percent.
  - Countries identified as most efficient: Australia, Korea, and Switzerland.
  - Countries identified as least efficient: Hungary, the Slovak Republic, and the United States.
  - In developing and emerging countries, health spending is an important determinant of health outcomes; efficiency varies widely, indicating scope to improve health outcomes without raising spending.

### Public expenditures projections (advanced economies)
- Aggregate projections:
  - Public health spending in advanced economies is projected to rise on average by 3 percentage points of GDP over the next 20 years.
  - Spending is projected to increase by over 2 percentage points of GDP in 14 of the 27 advanced economies.
- Decomposition of projected increase (20-year horizon):
  - Around one-third of the increase would be due to the effects of population aging (a slightly higher share than in the past).
  - The remaining two-thirds would be due to excess cost growth (ECG), reflecting technological change, income growth, the Baumol effect, and health policies.
- Country-specific highlighted projections:
  - United States: public health spending is projected to rise by about 5 percentage points of GDP over the next 20 years—the highest of the advanced economies.
  - Europe: public health spending is expected to rise substantially, by 2 percentage points of GDP on average, with spending expected to rise by over 3 percentage points of GDP in seven countries.
- Comparison with other estimates:
  - European Commission’s Aging Report baseline projection anticipates spending will rise by about ¾ percentage point of GDP over the next 20 years; this lower increase reflects a relatively low excess cost growth (about 0.2 percent) and would imply a sharp break from past trends.

### Methodology for projections (Box 1)
- Approach:
  - Projections improve on earlier studies by using country-specific estimates of excess cost growth (ECG).
  - Based on an econometric model explaining growth of real per capita public health spending as a function of growth of real per capita income, demographic factors, and country-specific effects (Appendix II).
  - ECG is the excess of growth in real per capita health expenditures over the growth in real per capita GDP after controlling for demographic change.
  - ECG is estimated using 1980–2008 data to reflect countries’ varying success in containing health spending growth over the last three decades.
- Empirical findings and assumptions:
  - The average ECG arising from this model is about 1.0 percent (Appendix Table 3, weighted average basis), comparable to estimates from previous studies.
  - For three countries (Norway, Switzerland, and the United States), using more recent data produces slightly lower estimates of ECG, which are incorporated in the projections.
  - Evidence of convergence implies that once convergence has been achieved, spending should decelerate relative to the convergence period. However, recent trends do not suggest a slowdown in ECG; ECG has increased in more recent periods.
  - For emerging economies, due to short time series (1995–2007) and poor fit, projections assume a common ECG of 1.0 percent across all countries, consistent with the average in advanced countries over 1980–2008 and broadly consistent with raw data for emerging economies (Appendix Table 4).
  - Projections incorporate differences across countries in spending by age group and expected changes in age structure.
- Notes on coverage and starting point:
  - Since the starting point was set at 1980—when most advanced countries had achieved nearly universal insurance—increases in coverage would not play a major role in these estimates.
  - ECG estimates from models including a convergence term do not differ much from those excluding the convergence term.

*Italic: Source — IMF staff estimates and analysis drawn from the provided chapter content.*

### 18.      The cumulative fiscal burden of public spending increases will be large. The net

### _122810 - 18.      The cumulative fiscal burden of public spending increases will be large. The net

### Fiscal burden of projected public health spending increases
- Net present value of the projected increases in public health spending during 2011–30 is 26 percent of today’s GDP.
- Net present value of projected increases over 2011–50 rises to 98 percent of GDP, based on staff’s longer-term projections of spending increase of 6½ percentage points of GDP over this period (Appendix Table 5).
- The estimates assume a discount rate of 1 percent.

### Recent reforms and their likely impact on long-term spending trends
- United States
  - The 2010 reform expands coverage; coverage is expected to rise by 11 percentage points to reach 94 percent of the population by 2019.
  - Expansion achieved by raising limits on Medicaid eligibility to 133 percent of the poverty line and providing tax breaks and subsidies to individuals between 133 and 400 percent of the poverty line who purchase insurance.
  - The legislation forbids insurance companies from denying coverage for pre-existing conditions.
  - Congressional Budget Office (CBO) projections: spending in 2030 would be 0.2 percent of GDP lower than forecast earlier on account of the reforms.
  - Medicare spending growth would be slower due to savings from cuts in payments to Medicare health care providers; however, savings are highly uncertain.
  - Revenue measures include an increase in payroll taxes for Medicare hospital insurance and an excise tax on expensive employer-provided health plans.
  - Taking into account revenue measures, the reform is expected to reduce the budget deficit by an average of 0.1 percent of GDP per year during 2010–19 and ½ percentage point of GDP per year over 2020–29.
- United Kingdom
  - Broader effort to contain spending increases envisaged; real health spending budgeted to rise by less than ½ percentage point over the next four years as part of fiscal adjustment efforts.
  - Government committed to limit the growth of real health spending to a cumulative ½ percentage point in 2011–15, which is projected to reduce spending by ¾ percentage point of GDP by 2015.
  - Consideration of a plan to reduce administrative costs by 45 percent, with the savings reinvested in patient care.
- Germany
  - Reversal of the reduced health care contribution approved in November 2010; spending reductions expected to be small (0.1 percentage point of GDP).
  - Reform aims at saving 0.4 percent of GDP.
- Pharmaceuticals
  - Pharmaceuticals constitute about 15 percent of public health spending (OECD).
  - Cost-containment steps (e.g., Ireland, United Kingdom) can yield short-term savings (example: 0.5 percent of GDP in Ireland) but are unlikely to have a major long-term effect given the modest share of pharmaceuticals in total public health spending.
- Note: These recent reforms in advanced economies have not been incorporated into the projections, including reforms being undertaken in Greece as part of its fiscal adjustment program.

### Projected increases in emerging economies (2011–30)
- Aggregate projection: public health spending in emerging economies is projected to rise by 1 percentage point of GDP over the next 20 years (Figure 6).
  - This is a third of the increase projected in the advanced economies.
  - Assumes excess cost growth in emerging economies will follow the average level observed in advanced countries over 1980–2008 and reflects lower initial health expenditure ratios in emerging economies.
- Country and regional patterns
  - In most countries, the increase would range between ½ to 1½ percentage points of GDP.
  - Aging would account for about ½ percentage point of GDP increase in this spending and would have the largest effect in Brazil, Chile, and Poland.
  - Emerging Europe and Latin America: on average, spending would rise by 1½ percentage point of GDP, with all countries projected to raise spending by at least 1 percentage point of GDP.
  - Emerging Asia: spending increases would be about half this amount, reflecting low initial spending levels.
- Weighted average = 1.0; Unweighted average = 1.1 (Figure 6).
- Implication: modest increases projected across regions suggest rising health spending is unlikely to pose a heavy fiscal burden in emerging economies over the next 20 years; primary challenge is to improve the efficiency of spending.

### Methodologies used to assess reforms
- Three complementary methodologies used: case studies, event study analysis, and econometric analysis.
  - Case studies: eight episodes of successful containment in advanced economies (Canada, Finland, Germany, Italy, Netherlands, Sweden, United Kingdom, United States) showing sustained reduction in public health spending-to-GDP ratios and moderation in real spending growth rates.
  - Event analysis: examined reforms in 24 countries, assessing public health spending before and after reforms and comparing with non-reforming countries.
  - Econometric analysis: used OECD data on health system indicators (Joumard, Andre, and Nicq, 2010) to evaluate relationships between system characteristics and growth of public health spending; simulated impacts by changing country ratings on these indices.

### Typology of reforms in advanced countries
- Macro-level controls
  - Budget caps: limits on overall healthcare spending or sub-sectors (e.g., global budgets for hospitals, expenditure ceilings for general practitioners).
  - Supply constraints: regulate volume of inputs or outputs (limits on physician training admittance, positive lists for drugs, delisting treatments).
  - Price controls: regulate prices of inputs/outputs (wage controls, reference pricing for pharmaceuticals).
- Micro-level reforms
  - Public management and coordination: organizational changes to reduce costs and improve incentives (abolition of managerial levels, decentralization, gatekeeping).
  - Contracting: provider reimbursement methods (salaries/budgets, case-based payment like capitation or DRGs, fee-for-service).
  - Market mechanisms: introduce competition and choice (internal markets, separation of purchaser/provider, patient choice).
- Demand-side reforms
  - Increase patient cost-sharing (lump-sum or percentage copayments) and alter tax treatment of private health insurance.

### Econometric findings on reform effectiveness
- OECD indices range from 0 to 6; mean score for indices is 2.6.
- Estimated impact on excess cost growth (ECG) of a country moving up one unit in a given OECD index (one-unit change effects; impact shown relative to the 1.0 average ECG):
  - Extending market mechanisms: -0.50
  - Improving public sector management and coordination: -0.30
  - Strengthening budget caps: -0.24
  - Price controls: +0.11 (associated with higher excess cost growth)
- Combined effect reported: a one unit improvement in the budget constraint index and central government oversight reduces excess cost growth by ¼ percentage point.
- Event studies: in 19 episodes (in 13 countries) where a budget cap was implemented, increases in spending-to-GDP ratios slowed substantially, while spending ratios continued to rise in countries without caps.
- Caveats:
  - Data limitations and simultaneous implementation of multiple reforms complicate identification of causal impacts.
  - Some effective macro controls (e.g., budget caps) can create undesired side-effects (e.g., longer waiting times for elective surgery, inequitable access) and may not incentivize efficiency as they often rely on historical cost bases.
  - In practice, some reforms may require offsetting changes in other indices, and simultaneous reforms across different health system characteristics may be undesirable.

### Country experience with budget caps and macro controls
- Budget caps and central oversight have been effective in reducing spending growth according to econometric analysis and event studies.
- In six out of the eight successful reform episodes in case studies, budget caps were used to contain cost increases.
- Budget caps were typically employed before or during broader fiscal consolidation episodes.
- Drawbacks observed:
  - Limit access to health care (e.g., growing waiting times in Canada, Sweden, United Kingdom during consolidation).
  - Potential inequity as wealthier households circumvent waiting lists via private care.
  - Limited incentive for efficiency since caps are often based on historical costs.

*Italic source attribution: Excerpt from IMF staff paper (content unit _122810) contained in the provided PDF chapter/section.*

### 26.      Budget caps are most effective when applied to broad health expenditure

### 26.      Budget caps are most effective when applied to broad health expenditure aggregates

### Budget caps and aggregate constraints
- Budget constraints applied partially (e.g., only to in-patient care spending) can lead to expenditure increases in areas not controlled.
- Country experiences:
  - Netherlands: the partial budget cap on in-patient care was unwound by subsequent reform efforts to introduce a managed care model.
  - Italy: partial caps on capital investment proved ineffective.
  - Finland: introduction of fixed transfers to municipalities to finance health care, alongside other constraints, successfully contained costs of in-patient care, but was offset by higher pharmaceutical expenditure financed through a different source and not subject to the cap on transfers.
- Policy implication: budget caps are most effective when applied to broad health expenditure aggregates to avoid offsetting spending outside the cap.

### Supply and price controls
- Econometric findings:
  - Limiting supply (regulatory controls on workforce and equipment) lowered excess cost growth only slightly (less than 0.1 percentage point).
  - Price controls have been ineffective; econometric results suggest increased reliance on price controls actually increases excess cost growth.
- Country experiences with supply restrictions:
  - Canada: hospital closures, mergers, reduction in number of beds.
  - Finland: reduction in number of hospital beds.
  - Germany: delisting ineffective treatments and positive drug lists.
  - Italy: positive list for pharmaceuticals.
  - Netherlands: delisting certain treatments.
- Country experiences with price controls:
  - Canada: regulated fees for physicians.
  - Germany and Netherlands: reference pricing for pharmaceuticals.
- Mechanism: supplier responses (increasing volumes, directing patients to higher-cost services) can erode the impact of price controls.

### Cost-effectiveness evaluations to control supply
- Many countries (Australia, Finland, the Netherlands, Sweden, and the United Kingdom) have government bodies that assess cost-effectiveness of technologies to determine public financing.
- United States: formal cost-effectiveness analysis is not used to make public reimbursement decisions historically, but is moving toward supporting Comparative Effectiveness Research in its 2010 health care reform.
- Complementary approaches: define and promote “best practice” medicine and update in line with technology advancements; provide incentives for private sector to develop cost-effective technologies.

### Micro-level reforms: public management and contracting
- Decentralization with central oversight:
  - A one unit increase in the index measuring involvement of local and regional governments in key health care decisions reduces excess cost growth by about 0.30 percentage points.
  - However, a one-unit reduction in the central oversight index would offset the majority of this impact—checks and balances are necessary.
  - Examples: Canada and Sweden (high sub-national involvement and central oversight) have lower excess cost growth than countries with weak oversight (Spain).
- Other public management and contracting findings:
  - Changes in the gatekeeping index have a small effect on excess cost growth.
  - Incentives to reduce volumes (e.g., reduced reliance on fee-for-service) and increased delegation to insurers are associated with higher excess cost growth.
- Event and case-study evidence:
  - Management and contracting reforms have helped slow spending growth in aggregate.
  - United States: adoption of managed care (pre-authorization, selective contracting).
  - Shift from fee-for-service to case-based payments (DRGs) in Finland, Germany, Italy, United Kingdom.
  - Forward-looking/prospective budgets used in Finland and Sweden provide hard budget constraints based on projected demand and average cost per patient or case.
- Caveats: case-based payments can be less effective if providers increase quantities (admissions).

### Market mechanisms
- Econometric finding: a one-unit increase in indices for choice of providers and insurers, private provision, and insurer competition would altogether reduce excess cost growth by about ½ percentage point.
- Event studies: growth in public health spending as a share of GDP slowed after reforms increasing market mechanisms relative to countries not adopting them.
- Design caveats and country experiences:
  - Italy, Sweden, United Kingdom: separation of purchaser and provider roles to enable active contracting.
  - United Kingdom and Sweden allowed greater hospital competition; evidence mixed.
  - Sweden: competition plus DRG introduction initially increased hospital care volume and expenditure; countermeasures included reducing DRG rates, imposing penalties on providers, and charges for municipalities not ready to receive discharged patients.

### Demand-side reforms
- Econometric result: extending supplementary and complementary private insurance dampens excess cost growth by -0.10 percentage points.
- Evidence on raising copayments is mixed; event studies of 17 reforms show slowing of growth relative to GDP for about a year after reform but reversal thereafter.
- Potential: outpatient spending accounts for 30 percent of spending—raising copayments could have substantial effects.
- Tax expenditure considerations:
  - Abolishing tax deductions for medical expenses (Finland) can reduce implicit subsidies.
  - In the U.S. context these tax benefits amount to 2 percent of GDP.
- Equity and access concerns:
  - Cost-sharing can discourage moral hazard but may reduce access for poor households.
  - Mitigations: income-related cost-sharing, exemptions for chronic medical conditions, value-based benefit design varying cost-sharing by cost-effectiveness.

### Other lessons and implementation
- Continuous monitoring and refinement of reforms using real-time data on provider and patient behavior is required because actors adapt and find ways around rules.
- Health information technology (HIT) can improve efficiency (increase adherence to clinical guidelines, enhance disease surveillance, decrease medication errors, reduce duplication) but benefits are not yet fully exploited.
- Emphasis on preventive care and linking incentives (e.g., cost sharing or insurance premia tied to regular checkups) can help decrease health spending.
- Protecting access for the poor:
  - Maintain access to a basket of basic health care services during reforms.
  - Cost containment reforms should preserve mean-tested programs and universal access pillars.

### Summary of results (key conclusions)
- Effective reforms combine macro-level instruments to contain costs and micro-level reforms to improve efficiency.
- Among macro instruments, budget caps and central oversight are powerful tools for reducing spending growth.
- Among micro-level reforms, strengthening market mechanisms (increasing patient choice of insurers, allowing greater competition between insurers, relying more on private provision, and allowing more competition between providers) is particularly important to contain costs.
- Management and contracting reforms (extending managed care, shifting toward case-based payments) are central to improving spending efficiency.
- Demand-side reforms (expanding private insurance and increasing cost sharing) have been successful in containing spending growth but raise equity and access concerns.
- Price controls are among the less successful approaches; they are often eroded by supplier responses such as increasing volumes or directing patients to higher-cost services.
- Some public management, contracting, and market-mechanism reforms are associated with higher excess cost growth: increasing insurer-level decision-making, providing greater user information on quality and price, and incentives to reduce service volume—these may nevertheless improve quality of care.

*Sources: OECD Health Database and IMF staff calculations.*

### 41.      These conclusions help explain the varying success of countries in containing the

### _122810 - 41.      These conclusions help explain the varying success of countries in containing the

### Determinants of varying success in containing public health spending growth
- Italy, Japan, and Sweden: above-average scores in indices related to budget caps and central oversight; projected to experience the lowest excess cost growth.
- Macro instruments: played key roles in successful containment episodes in Canada, Sweden, and the United Kingdom.
- Market mechanisms: important in Germany and Japan—both score relatively high in indices for choice of insurer, choice of provider, and private provision; associated with low excess cost growth.
- Countries less successful at controlling spending growth tend to use macro- and micro-level instruments less extensively and score low across several health system indices, implying room for reform. Examples:
  - Luxembourg and Greece: score below average in the majority of indices evaluated.
  - Switzerland and the United States: score low on the budget caps.
  - Portugal and the United Kingdom: score below average on market mechanisms.

### Impact of further reforms (simulated impacts to 2030)
- Reform categories evaluated: budget caps (including budget constraints and central oversight); public management and coordination (including gatekeeping and greater sub-national government involvement); market mechanisms (including choice of insurers and providers, degree of private provision, and ability of insurers to compete); demand-side reforms (including expansion of private insurance and cost-sharing); supply controls (including regulation on the health care workforce and the use of a well defined health basket).
- Simulated combined effect: raising countries to the mean score in each index (Figure 12 shows unweighted averages).
- Average impacts on public health spending to GDP ratios in 2030 (decrease relative to baseline, percent of GDP):
  - Market mechanisms: 0.5 percentage points of GDP.
  - Budget caps: 0.25 percentage points of GDP.
  - Demand-side reforms: -0.10 percentage points of GDP.
  - Supply constraints: -0.05 percentage points of GDP.
- Footnotes/notes preserved:
  - For the United States, simulations only show impact of an increase in this index for a strengthening of budget constraints and supply constraints; U.S. index values set equal to average for countries below sample average in each of these indices.
  - In the regression analysis, the effect of each individual reform is estimated keeping all other indices fixed.
- Important caveats:
  - Possible savings under reforms are subject to uncertainty.
  - Simultaneous reforms across categories may be undesirable or counterproductive; effects cannot necessarily be aggregated.
  - Some reforms may be complementary, implying individual reform estimates could be understated.

### Country-group specific reform implications and projections
- Countries relying more heavily on market mechanisms:
  - Canada, the Czech Republic, France, Germany, Japan, and Slovakia: projected relatively low ECG; marginal reforms may suffice to keep ECG low, though demographics may necessitate bolder reforms. Slovakia’s low efficiency ranking indicates room for reform.
  - Australia, Austria, Belgium, and the Netherlands: projected ECG moderate (¾ to 1 percentage point). These combine macro-level (some central oversight and tight regulations for workforce and equipment) and micro-level components (extensive private provision and over-the-basic insurance). Possible strategies: tighten budget constraints, strengthen gatekeeping, increase cost-sharing.
  - Greece, Korea, Luxembourg, Switzerland, and the United States: projected relatively high ECG; need future reforms, especially where efficiency scores are low (Greece and Luxembourg). These countries score relatively low in macro-level instruments (less stringent budget constraints, minimal central oversight in Korea and Luxembourg, lax workforce and equipment regulations, little gatekeeping). Recommended focus: address these macro-level weaknesses.
- Countries relying more heavily on public insurance and provision:
  - Denmark, Ireland, Italy, and Sweden: projected relatively low ECG. Denmark and Ireland could focus on efficiency-enhancing reforms to reduce ECG further; Denmark could consider using budget caps. Italy and Sweden could improve priority setting (better monitoring of public health objectives and composition of public health package).
  - Norway and Spain: projected moderate growth with ECG of 0.6 and 0.7 respectively; recommended actions: tighten macro-controls (including increasing central oversight), broaden insurance for over-the-basic care (Norway), improve priority setting (Spain).
  - Iceland, Finland, Portugal, New Zealand, and the United Kingdom: highest ECG in this group—all above 1 percentage point. Recommended actions: strengthen supply constraints on workforce and equipment; extend role of private health insurance for over-the-basic health care and increase choice among providers (especially Finland, New Zealand, United Kingdom).

### Reform sufficiency, additional measures, and fiscal implications
- Simulated reforms substantial but may still fall short of stabilizing public spending-to-GDP ratios at current levels for some countries; additional efforts needed.
- If reform savings are insufficient, fiscal adjustment may need greater cuts in other areas or additional revenue increases.
- Specific country notes:
  - Advanced Europe: countries with relatively high projected growth in public health spending—Austria, Portugal, Switzerland, and the United Kingdom—may not achieve stabilization through simulated reforms alone.
  - United States: illustrative savings from assumed increase to the mean in budget caps category would yield savings of about 1 percentage point of GDP; consistent with some recent reform proposals.
- Additional options beyond econometric analysis:
  - Health information technology: potential savings of 0.2 percent of GDP.
  - Curtailing favorable tax treatment of health insurance contributions (tax expenditures about 2 percent of GDP) could yield large savings; recent proposals could yield an additional 0.5 percentage points of GDP on an annual basis.
  - Combined, these reforms (including simulated econometric reforms and tax changes) could reduce spending (including tax expenditures) by about 2 percentage points of GDP; this would still leave health spending rising by 3 percentage points of GDP.

### Concerns about health outcomes and role of the state
- Two key questions from reform scenarios:
  1. Will cost-reducing reforms adversely affect health outcomes?
  2. Do reforms imply a fundamental change in the role of the state in provision of health care services?
- Evidence on health outcomes and reforms:
  - Expansion of managed care in the United States in the 1990s reduced spending growth without large deleterious impacts on health outcomes compared to fee-for-service.
  - GP fund-holding in the United Kingdom reduced waiting times; evidence on costs, referral rates, patient satisfaction, and inequality is mixed.
  - DRGs: a few studies show higher readmission rates or slower quality gains, but most studies find no evidence of adverse effects on health outcomes.
  - Greater cost-sharing: reduces both essential and non-essential health services and is associated with worse health outcomes for individuals of poor health.
- Efficiency potential:
  - Continued high levels of inefficiency in health spending suggest ample opportunities to improve health outcomes without raising spending.
  - Most micro-level efficiency reforms (e.g., introduction of competition) can improve responsiveness to patient needs and reduce excess cost growth.
  - Monitoring required: limited research necessitates close monitoring of cost-containment reforms’ impact on health outcomes during implementation; measures may need fine-tuning to prevent adverse effects.
- Implications for public benefit packages:
  - To contain public spending increases, countries may need to eliminate some services/products from public packages (e.g., dental services, non-generic pharmaceuticals) or rely more on private financing.
  - Predominantly public systems could use greater cost-sharing or increase role of private insurance (private insurance can cover services not in public package; examples: Australia, Canada, France, Ireland, Italy, Spain, United Kingdom).
  - Econometric evidence suggests greater shares of private insurance are associated with lower excess cost growth.
  - Market failures with private insurance (adverse selection and risk selection) require regulatory responses: insurers should be required to offer coverage to all individuals regardless of health status or claims history; premiums should only vary by allowed demographic characteristics (e.g., age) but not by health status; regulators need to ensure adequate competition.

### Healthcare reform in emerging economies: challenges and fiscal space
- Section draws on literature and six case studies (Estonia, Hungary, China, Thailand, Chile, Mexico) to assess reform challenges in emerging economies.
- Key differences from advanced economies:
  - Average life expectancy in emerging economies about nine years less than in advanced economies; infant mortality rates significantly higher.
  - In emerging Europe, spending is relatively high by emerging economy standards due to near-universal coverage and disease patterns similar to advanced economies; health outcomes remain relatively poor, so challenge is to enhance spending efficiency and quality.
  - In much of emerging Asia and Latin America, main challenge is to expand basic coverage without generating undue fiscal pressures as incomes rise.
  - Increased public spending in these economies could also catalyze growth.
- Table 2 (selected 2007 indicators, simple averages):
  - GDP per capita:
    - Advanced: 36,567
    - All: 11,981
    - Europe: 14,408
    - Other Emerging: 10,542
  - Total health expenditures per capita:
    - Advanced: 3,351
    - All: 728
    - Europe: 935
    - Other Emerging: 612
  - Total health expenditures % of GDP:
    - Advanced: 9.2
    - All: 5.8
    - Europe: 6.5
    - Other Emerging: 5.4
  - Public health expenditures per capita:
    - Advanced: 2,446
    - All: 424
    - Europe: 651
    - Other Emerging: 295
  - Public health expenditures % of GDP:
    - Advanced: 6.7
    - All: 3.2
    - Europe: 4.2
    - Other Emerging: 2.5
  - % of government expenditures on health:
    - Advanced: 15.8
    - All: 9.8
    - Europe: 11.0
    - Other Emerging: 8.6
  - Out-of-pocket expenditures per capita:
    - Advanced: 533
    - All: 198
    - Europe: 273
    - Other Emerging: 164
  - Out-of-pocket % of total health expenditures:
    - Advanced: 17.2
    - All: 33.0
    - Europe: 29.3
    - Other Emerging: 37.1
  - % of population above 60:
    - Advanced: 21.2
    - All: 13.5
    - Europe: 21.3
    - Other Emerging: 9.0
  - Life expectancy:
    - Advanced: 80.1
    - All: 71.0
    - Europe: 72.6
    - Other Emerging: 69.5
  - Infant mortality:
    - Advanced: 3.7
    - All: 18.9
    - Europe: 8.0
    - Other Emerging: 27.0
- Fiscal space to increase public health spending:
  - Assessed vis-à-vis illustrative target of reducing public debt to 40 percent of GDP over next 20 years.
  - Figure 13 indicates adjustment required per country and projected increase in public health spending in 2011–30 (public health expenditures change, 2010-2030; illustrative fiscal adjustment 2011-2030).
  - Country examples:
    - No fiscal adjustment needed for illustrative target: Brazil, Estonia (easier to accommodate projected rise in health spending).
    - High adjustment needs and above-emerging-economy-average projected spending increases: Bulgaria, Latvia, Lithuania, Romania, Poland (limited fiscal space; efficiency improvements especially important).
    - Emerging Asia: adjustment needs generally lower. Fiscal conditions conducive to expanding public health spending in Indonesia, Philippines; limit room for increases in India, Malaysia.
  - Growth prospects: countries with high economic growth better positioned to expand health spending; countries with moderate growth need more gradual approach.
- Notes on methodology: illustrative fiscal adjustment refers to change in cyclically adjusted primary balance (CAPB) needed to reduce public debt-to-GDP ratios to 40 percent by 2030 or stabilize debt-to-GDP at end-2012 levels.

*Italic: Source — IMF staff estimates and analyses from the content unit provided.*

### Appendix Table 2) for details. Circles indicate debt ratios above 40 percent projected at end-2012. Triangles indicate d

### Appendix Figure 2. Public Health Spending in Emerging Economies

### _122810 - Appendix Figure 2. Public Health Spending in Emerging Economies

### Econometric framework and definition of Excess Cost Growth (ECG)
- ECG is defined as the excess of growth in real per capita health expenditures over the growth in real per capita GDP after controlling for the effect of demographic change.
- Model specification (in growth/first differences) used:
  - Equation (1) (as presented): *)log()log()log( ,,3 , 1, 2, 1, 10 , 1, tiii ti ti ti ti ti ti x x g g h h  
  - Country-specific ECG expression (equation (2) as presented): )Growth )(1( i ^ 1 ^ ,3 ^ 0 GDPECG ii 
- Sensitivity analysis: OLS specification without country fixed effects (equation (3) as presented) and country-specific ECG computed as in equation (4) as presented.
- Rationale for first-differences:
  - Log series of health spending and GDP levels are generally non-stationary; first differences are stationary.
  - Growth-rate specification provides an interpretation consistent with ECG as the main focus (constant = common ECG; fixed effects = heterogeneity).

### Excess Cost Growth estimates — Advanced economies
- Data: country fixed-effects model based on 1980–2008; sensitivity also on 1995–2008. For three countries (Norway, Switzerland, and the United States), 1995–2008 estimates used in projections.
- Key summary results:
  - Difference between public health spending growth and GDP growth (unadjusted averages):
    - Average (unweighted) for 1980–2008: 1.2 percent
    - Average (unweighted) for 1995–2008: 1.5 percent
  - Country fixed-effects ECG averages:
    - Average (unweighted) for 1980–2008: 0.8 percent
    - Average (unweighted) for 1995–2008: 1.7 percent
  - Average (weighted) values reported: 1.7, 1.5, 1.2, 1.3 (presented in Appendix Table 3 under “Average / Weighted”)
  - Public health spending in advanced economies projected to increase, on average, by 3 percentage points of GDP between 2010 and 2030.
  - ECG estimates were capped between zero and 2.0 percent for projections.
- Appendix Table 3 — country-specific ECG values (columns correspond to 1980-2008 and 1995-2008 for two estimation approaches; values listed exactly as shown):
  - Australia 1.5 1.6 0.9 1.8
  - Austria 1.1 1.0 1.0 1.3
  - Belgium 1.0 1.1 0.8 1.4
  - Canada 1.3 0.9 0.6 1.4
  - Czech Republic -0.5 -1.2 -0.9 0.3
  - Denmark 0.0 1.3 0.1 1.2
  - Finland 1.5 0.7 1.1 1.7
  - France 1.4 0.8 0.3 0.3
  - Germany -0.1 -0.1 -0.1 -0.3
  - Greece 1.9 2.2 1.6 3.5
  - Iceland 1.1 0.6 1.1 2.5
  - Ireland 0.1 2.6 0.0 3.7
  - Italy 1.2 2.7 -0.1 1.1
  - Japan 1.1 1.3 -0.7 -0.8
  - Korea 5.5 7.3 3.5 4.1
  - Luxembourg 1.3 2.4 2.4 2.5
  - Netherlands 1.3 1.8 0.9 1.9
  - New Zealand 1.5 2.8 1.0 2.9
  - Norway 0.6 0.2 0.7 0.6
  - Portugal 2.1 2.4 1.4 1.9
  - Slovakia 0.2 0.2 0.3 1.6
  - Slovenia 0.2 0.2 -0.1 0.9
  - Spain 1.3 0.8 0.6 1.1
  - Sweden -0.3 0.8 -0.4 1.8
  - Switzerland 2.3 1.6 1.9 1.8
  - United Kingdom 1.5 2.2 1.7 3.1
  - United States 2.4 1.4 2.3 1.8
  - Average Weighted 1.7 1.5 1.2 1.3
  - Average Unweighted 1.2 1.5 0.8 1.7
- Regression (dependent variable: log of real per capita public health spending) — coefficients as presented:
  - Log of GDP per capita      0.303 ***0.097
    - (0.079)(0.110)
  - Log of age 14 and under 0.104 0.450
    - (0.193)(0.321)
  - Log of age 65 plus     0.638 ***   0.614 **
    - (0.201)(0.273)
  - Constant     0.023 ***     0.035 ***
  - R2 0.040 0.021
  - N 618 324
- Notes: Standard errors in parentheses. * p<.1; ** p<.05; *** p<.01. All variables are expressed in first differences except the constant.

### Excess Cost Growth estimates — Emerging economies
- Data sources: OECD and WHO; fixed-effects and OLS models estimated separately for advanced and emerging economies.
- Key summary results:
  - Average ECG without adjusting for demographics (difference between public health spending growth and GDP growth): 0.8 percent (text); Appendix Table 4 reports Weighted 0.9 and Unweighted 1.1 for the “Difference between public health spending growth and GDP growth” column, and Fixed effects averages Weighted -2.4 and Unweighted -1.8.
  - Fixed effects model, adjusting for demographic changes: average -1.8 percent (text).
  - Because of variability and data limitations, projections for emerging economies assume an ECG of 1 percent (text) — justified as close to the emerging-economy average without adjusting for demographic changes.
- Appendix Table 4 — country-specific values (two columns: “Difference between public health spending growth and GDP growth” and “Fixed effects”) — values listed exactly as shown:
  - Argentina 0.2 -1.2
  - Brazil 1.7 -1.3
  - Bulgaria 1.0 -1.6
  - China 0.6 -3.8
  - Chile 1.0 -2.2
  - Estonia -2.5 -6.6
  - Hungary -1.3 -3.0
  - India 0.0 -2.2
  - Indonesia 3.8 0.2
  - Latvia -0.8 -5.1
  - Lithuania 0.7 -3.5
  - Malaysia 2.7 0.0
  - Mexico 1.0 -2.3
  - Pakistan 2.1 1.0
  - Philippines 0.0 -1.8
  - Poland 1.1 -2.7
  - Romania 3.6 0.3
  - Russia -1.1 -4.9
  - Saudi Arabia 4.7 4.6
  - South Africa 0.6 -2.5
  - Thailand 4.3 -0.3
  - Turkey 3.1 0.4
  - Ukraine -0.3 -3.8
  - Average: Weighted 0.9 -2.4
  - Average: Unweighted 1.1 -1.8
- Regression (dependent variable: log of real per capita public health spending) — coefficients as presented:
  - Log of GDP per capita 0.545 ***
  - Log of age 14 and under -0.758
  - Log of age 65 plus 0.908
  - Constant 0.006
  - R2 0.285
  - N 276
- Notes: * p<.1; ** p<.05; *** p<.01. All variables are expressed in first differences except the constant.

### Projections of public health spending and assumptions
- ECG estimates are combined with projected changes in demographic composition and country-specific age-spending profiles to project future public health spending.
- Important projection assumptions:
  - For advanced economies: ECG estimates from country fixed-effects regressions based on 1980–2008 used; ECG estimates capped between zero and 2.0 percent.
  - For emerging economies: due to data limitations and variability, a constant ECG of 1 percent is assumed for projections.
  - Age-spending profiles: for emerging economies a common age-spending profile is used based on the OECD average.
  - Longevity assumption: following the European Commission (2009) baseline, one-half of the gains in longevity are assumed to be spent in good health.
  - Figures for 2010 are estimated on the basis of 2008 figures and reported ECG estimates; 2010 figures interpreted as health spending as a share of potential GDP (to abstract from crisis effects).

### Institutional measures, reform impacts, and simulation approach (Advanced economies)
- OECD indicators (Joumard, Andre, and Nicq, 2010) provide measures of health institutions and policies: 269 qualitative characteristics transformed into 20 indicators; 17 used to create four composite indices via principal component analysis:
  - Composite indices: “reliance on market mechanisms,” “intensity of regulation,” “intensity of budget constraint,” and “degree of decentralization.”
  - Indicators scored on a scale of zero to six; mapping of 17 indicators to reforms and PCA weights summarized in Appendix Table 6 (not reproduced here).
- Econometric estimation of reform impacts:
  - Regression (equation (5) as presented) includes the four composite indices (time-invariant) along with GDP and demographic controls; country-fixed effects cannot be included because indices are time-invariant.
  - Coefficients interpreted as relationship between health system characteristics in 2009 and spending growth in 1995–2008 (i.e., 2009 snapshot assumed to characterize 1995–2008).
  - Main empirical findings: reliance on market mechanisms and stringency of budget constraints are negatively related to public health spending growth; intensity of regulations and degree of centralization are positively related to public health spending growth (Appendix Table 7 referenced).

*Sources: WHO and IMF staff estimates.*

### Appendix Table 5. Projections of Public Health Spending 2010–50

### Appendix Table 5. Projections of Public Health Spending 2010–50

### Scope and structure
- Table presents projections of public health spending (Percent of GDP) for years 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050 and three scenarios: Baseline, Optimistic, Pessimistic.
- Country coverage: Advanced economies and Emerging economies (individual country series provided in the table).
- Note on scenarios: The optimistic (pessimistic) scenario assumes excess cost growth that is 0.5 percentage points lower (higher) than in the baseline.

### Key aggregated series (as reported in the table)
- Average: 5.45.96.47.07.68.38.99.610.32.21.53.0
- Advanced: 7.37.98.79.510.411.212.113.013.93.02.14.1
- Emerging: 2.52.72.93.23.53.84.14.44.71.00.61.3

### Illustrative country-level entries (table provides full series for each country)
- United States: 7.68.69.811.212.714.215.717.318.95.13.96.4
- Japan: 6.87.17.37.67.87.98.08.18.21.00.21.8
- Germany: 8.18.48.68.89.09.39.49.69.60.90.11.9
- France: 9.09.49.710.110.510.811.111.411.61.50.52.6
- China: 1.92.12.32.52.83.13.33.63.90.80.61.1
- India: 1.11.21.21.31.51.61.71.92.00.40.20.5
- Brazil: 3.63.94.24.75.15.66.26.77.31.61.12.1
- Russia: 3.53.84.04.34.65.05.35.76.01.10.71.6

### Notes on methodology and interpretation (from surrounding appendix text)
- Sources: OECD Health Database, WHO, and IMF staff estimates.
- The table is embedded in an analytical framework that links health institutions and policies to excess cost growth (ECG); optimistic/pessimistic scenario differences reflect ±0.5 percentage point differences in excess cost growth relative to baseline.
- The table is intended to be read alongside regression and simulation results in the appendix that estimate how reforms affecting ECG translate into public health spending outcomes.

*Source: Appendix Table 5. Projections of Public Health Spending 2010–50 (IMF staff; sources: OECD Health Database, WHO, and IMF staff estimates).*

### References

### References

### Social spending, consumption, and fiscal policy
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### Determinants, growth, and projections of health expenditure
- Baltagi, B. H., and F. Moscone, 2010, “Health Care Expenditure and Income in the OECD Reconsidered: Evidence from Panel Data,” IZA Discussion Paper 4851 (Bonn: Institute for the Study of Labor).
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### Health systems, financing, and reform
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- Docteur, E., and H. Oxley, 2003, “Health-Care Systems: Lessons from the Reform Experience,” OECD Health Working Papers No. 9 (Paris: Organization for Economic Cooperation and Development).
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### Payment systems, quality, and technology
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- Hillestad, R., and others, 2005, “Can Electronic Medical Record Systems Transform Healthcare? An Assessment of Potential Health Benefits, Savings, and Costs,” Health Affairs, Vol. 24, No. 5.
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### Efficiency, measurement, and empirical methods
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- Evans, D. B., and others, 2000, “The Comparative Efficiency of National Health Systems in Producing Health: An Analysis of 191 Countries,” GPE Discussion Paper Series: No. 29 (Geneva: World Health Organization).
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- Smith, S., J. Newhouse, and M. Freeland 2009, “Income, Insurance, and Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, Vol. 28, No. 5, pp. 1276–84.
- Hauner, D., 2007, “Benchmarking the Efficiency of Public Expenditure in the Russian Federation,” IMF Working Paper No. 07/246 (Washington: International Monetary Fund).

### Subnational fiscal relations and institutions
- Crivelli, E., A. Leive, and T. Stratmann, 2010, “Subnational Health Spending and Soft Budget Constraints in OECD Countries,” IMF Working Paper No. 10/147 (Washington: International Monetary Fund).
- Thornton, J., and A. Mati, 2008, “Fiscal Institutions and the Relation between Central and Sub-National Government Fiscal Balances,” Public Finance Review, Vol. 36, No. 2, pp. 243–54.
- Mattina, T., and V. Gunnarsson, 2007, “Budget Rigidity and Expenditure Efficiency in Slovenia,” IMF Working Paper No. 07/131 (Washington: International Monetary Fund).

### Insurance, access, and consumer incentives
- Chou, S.-Y., J.-T. Liu, and J. K. Hammitt, 2003, “National Health Insurance and Precautionary Saving: Evidence from Taiwan,” Journal of Public Economics, Vol. 87, pp. 1873–94.
- Gruber, J., 2006, “The Role of Consumer Copayments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond” (Washington: The Henry J. Kaiser Family Foundation).
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- Lu, J.-F., and W. C. Hsiao, 2003, “Does Universal Health Insurance Make Health Care Unaffordable? Lessons From Taiwan,” Health Affairs, Vol, 22, No. 3, pp. 77–88.

### Health information technology and quality measurement
- Congressional Budget Office (CBO), 2008, Evidence on the Costs and Benefits of Health Information Technology, Publication No. 2976 (Washington: U.S. Government Printing Office).
- Hillestad, R., and others, 2005, “Can Electronic Medical Record Systems Transform Healthcare? An Assessment of Potential Health Benefits, Savings, and Costs,” Health Affairs, Vol. 24, No. 5.
- Smith, S., J. Newhouse, and M. Freeland 2009, “Income, Insurance, and Technology: Why Does Health Spending Outpace Economic Growth?” Health Affairs, Vol. 28, No. 5, pp. 1276–84.

### Cross-cutting literature and surveys
- Hsiao, W., and P. Heller, 2007, What Macroeconomists Should Know about Health Care Policy (Washington: International Monetary Fund).
- Docteur, E., and H. Oxley, 2003, “Health-Care Systems: Lessons from the Reform Experience,” OECD Health Working Papers No. 9 (Paris: Organization for Economic Cooperation and Development).
- Joumard, I., C. Andre, and C. Nicq, 2010, “Health Care Systems: Efficiency and Institutions,” Economics Department Working Paper No. 769 (Paris: Organization for Economic Cooperation and Development).
- World Health Organization, 2000, “Health Systems: Improving Performance,” The World Health Report (Geneva).

*Source: _122810 - References (IMF PDF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_122810.pdf_