## Health Care Spending Issues In Advanced Economies

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---

### Recent Trends and Challenges
- Total health spending increased by more than 6 percentage points of GDP in the OECD between 1970 and 2007.
- Average public spending for health care increased by 3!/2–4 percentage points of GDP between 1970 and 2007.
- In per capita terms, real public spending on health care more than quadrupled between 1970 and 2007.
- Between 1980 and 2007 in OECD countries, the share of general government outlays spent on health increased from 8.4 percent to 14.8 percent.
- IMF (2010) projects public expenditures on health care to increase by over 31/2 percentage points of GDP by 2030 in advanced countries, to 10!/2 percent of GDP on average.
- Key demand- and supply-side drivers:
  - Ageing: elderly people consume more health services, on average.
  - Rising incomes: as countries grow richer, health care spending tends to rise proportionately more than income.
  - Technology: improved diagnostics and treatments (e.g., use of MRIs instead of x-rays) expand possible care and can raise costs reflecting quality improvements; future technological impacts on costs are uncertain.
- Institutional factors shaping expenditure effects include patient cost-sharing, tax treatment of private health insurance, and provider payment methods.
- Financing and purchasing mechanisms are of greatest relevance for fiscal policy; emerging economies face lower spending and less extensive coverage, with priorities to expand coverage at reasonable fiscal cost and improve efficiency and allocation toward public goods (for example, control of infectious diseases).

### Analyzing Health Spending
- Main analytical approaches:
  - Efficiency frontiers, cross-country comparisons, and benchmarking inputs and outcomes to identify outliers and potential reform areas.
  - Production function approaches and cross-country empirical studies.
  - Caveat: variation across countries in outcomes vs. spending may reflect unobserved heterogeneity (education, diet, lifestyle), not only health-system inefficiency.
- Practical benchmarking:
  - Use scatter plots or bar charts to detect outliers and contributing policies.
- Key indicators to examine and interpret:
  - Salaries as a percentage of public health expenditure:
    - High share may reflect employment levels or salary levels; examine numbers of physicians and nurses per capita and physician payment methods (capitation, salary, fee-for-service).
  - Number and mix of physicians per capita:
    - Compare nurses per capita; examine medical school entry regulations and GP-to-specialist ratios (primary care often less expensive).
  - Number of outpatient and inpatient visits per capita:
    - High outpatient visits can signal low outpatient cost-sharing or high pharmaceutical cost-sharing (substitution effects); analyze cross-price elasticities.
  - Average length of stay (ALOS) in hospitals:
    - ALOS above 10 would be considered relatively high; high ALOS could reflect technical inefficiency, higher quality per discharge (lower readmissions), or a greater share of difficult inpatient cases; examine hospital reimbursement methods and medical protocols.

### Reform Options (demand- and supply-side)
- Overarching: Both demand- and supply-side reforms can address inefficiencies and contain expenditure growth; supply-side policies often have greater impact once patients contact providers.
- Demand-side options:
  - Option 1: Increase patient cost-sharing
    - Rationale: insurance creates moral hazard; cost sharing balances moral hazard and consumption-smoothing through risk sharing.
    - Evidence: RAND Health Insurance Experiment estimated a price elasticity of demand of roughly -0.2 for outpatient and inpatient services; higher coinsurance reduced utilization without worsening health status except for the poor and the chronically ill.
    - Design considerations:
      - Exemptions for the poor and chronically ill.
      - Account for cross-price elasticities across insured services (some goods are substitutes, others complements).
      - Example offset: increased drug copayments may increase outpatient utilization (Gaynor, Li, and Vogt, 2006).
    - Country experience: many countries have cost-sharing below optimal; some (United Kingdom, Denmark, Netherlands) have no cost-sharing for primary care, specialist, or hospital visits; private insurance covering patient charges can blunt utilization incentives and create negative fiscal externalities.
  - Option 2: Eliminate tax exclusions for private health insurance
    - Rationale: tax-favored treatment reduces after-tax price of insurance, encouraging over-generous coverage and over-insurance; no clear market failure justifies favorable tax treatment.
    - Fiscal note: foregone revenues (tax expenditures) can be large.
    - Country experience: tax exemptions for private health insurance discussed extensively in the U.S. context—where it amounts to 1!/4 percent of GDP; subsidies for private insurance also exist in Australia, Denmark, and Greece.
- Supply-side options:
  - Option 3: Modify provider payments to impose a harder budget constraint
    - Major payment methods:
      - Salaries or budgets
      - Case-based payment (e.g., capitation, diagnosis related groups (DRGs))
      - Fee-for-service (FFS)
    - Incentive implications:
      - Salaries: incentivize care that does not require costly effort; encourage referrals; may deter treating sicker patients.
      - Fee-for-service: incentivizes delivering more services if priced above incremental cost.
      - Capitation: pays set amount per patient for a time period; encourages low-cost care and referrals and competition for patients.
    - In practice, mixed payment methods are common; payment design affects effort, referral patterns, and incentives to skimp on quality or over-provide services.
- Implementation note: After diagnosing sources of inefficiency with the indicators above, tailor policy recommendations to country-specific institutional factors; Appendix IV provides examples of back-of-the-envelope costing for reform options.

### Hospital Payment Mechanisms and Incentives
- Reimbursement at the hospital level may follow predetermined budgets, fee-for-service, or case-based payment based on patient characteristics.
- Budgets produce largely the same incentive effects as salaries.
- Diagnosis-related groups (DRGs):
  - DRGs reimburse the hospital or outpatient facility a fixed amount to provide care based on the patient’s diagnosis at admission.
  - Incentives created by DRGs:
    - Encourage low-cost treatment and faster discharge.
    - Encourage providers to assign patients to a group with a higher reimbursement rate (up-coding or “DRG creep”).
- Each payment mechanism gives different incentives for quantity and quality of services; an optimal payment mechanism would be some mixture of methods.
- Efficiency and containment considerations:
  - Shifts away from fee-for-service to case-based payments like DRGs are common to contain spending.
  - Case-based payments can restrain expenditure growth, but providers can increase quantities through increasing admissions; spending may rise with DRGs compared to fee-for-service or budgets.
  - Implementing and operating DRGs is highly data-intensive and requires periodic updates, affecting system efficiency.

### Country Experience with Payment Constraints and Reforms
- U.K. Fundholding scheme (1990s, ‘internal market’ reforms):
  - GPs allocated a budget to treat their registered patients, including purchase of hospital care.
  - Observed: reduced prices and referrals, but quality may have suffered.
- European Union in the 1980s:
  - Governments tried budget caps and constraining fee growth.
  - Enforcing budget caps on payments to hospitals or an entire component of spending will contain spending by construction; effect on quality is less clear-cut.
- Constraints on salaries and fees can produce adverse consequences:
  - U.S. government reimburses physicians much less for treating Medicaid patients than for Medicare patients; Medicare rate is still considerably less than private insurance rates.
  - Some physicians no longer treat Medicaid patients.
  - It remains to be seen whether the reduction in Medicare fees under the new U.S. health care reform will lead to similar refusals to treat Medicare patients.

### Cost-Effectiveness, Benefits Package, and Rationing
- Option 4: Improve cost-effectiveness evaluations for new and existing technology
  - Purpose: improve allocative efficiency by seeking the greatest overall benefit from limited government resources.
  - Jena and Philipson (2007, 2008): establishing a cost-effectiveness threshold effectively fixes the price level of new treatments; trade-off with innovation incentives depends on government-funded R&D.
  - Cost-effectiveness analysis role:
    - Important to determine optimal threshold for a quality-adjusted life year (QALY).
    - Governments can vary coinsurance rates inversely with cost-effectiveness (Cutler, 2004).
  - Country experience:
    - Some countries (United States) do not employ formal cost-effectiveness analysis for public reimbursement decisions.
    - Many countries (United Kingdom, Australia, Netherlands, Sweden, Finland) have government bodies assessing cost-effectiveness.
    - U.K. NICE implicitly defines a threshold for willingness to pay per QALY; treatments not meeting incremental benefit vs incremental cost threshold will not be funded by the U.K. National Health Service.
- Option 5: Reduce generosity of the publicly financed benefits package
  - Background:
    - Some treatments are too expensive for governments to finance for everyone; access is rationed by waiting lists or other regulations.
    - Dental care may be a candidate for removal from public packages because it has less of an insurance element.
  - Country experience:
    - In most cases, scope of publicly financed benefits expands (example: addition of prescription drugs to Medicare in the United States in 2003).

### Empirical Evidence and Country Case Studies
- Managed care evidence:
  - One study: managed care reduced spending between 30 and 40 percent for heart attack patients relative to traditional indemnity insurance that paid providers fee-for-service (Cutler, McClellan, and Newhouse, 2000).
  - Reductions occurred through reduced unit prices rather than lower quantities; little evidence that health outcomes suffered.
- European Union (1980s–1990s):
  - 1970s rapid growth prompted provider payment reforms in the 1980s; 1990s introduced demand-side measures (copayments, coinsurance) with limited impact due to low charges and widespread exemptions.
  - Competition reforms (UK, 1991–1997): GP fundholding reduced hospital prices, waiting times, referrals, and prescription drug spending; some evidence 30-day mortality after heart attack admissions "suffered" (Cookson and Dawson, 2005).
- Japan (1990s reforms):
  - Copayment rates rose to 30 percent in 2002; separate proportionate copayments for the elderly in 2000.
  - Fee-schedule revisions between 1990 and 2006 contributed to a decrease in national medical expenditure by 0.1 percentage point during the period (Jones, 2009).
  - New public long-term care insurance in 2000 with compulsory premium contributions from those older than forty.
- United States:
  - Managed care key to slowdown in private health spending growth in the 1990s; achieved savings via bargaining power and lower unit prices.
  - Evidence that managed care reduced adoption of some medical technologies (Mas and Seinfeld, 2008).
  - Managed care today is less restrictive; private health spending has grown faster than GDP since 2000.

### Projections, Appendices, and Methodology Highlights
- Appendix I — selected international public health expenditure levels (In percent of GDP) — selected country excerpts:
  - Australia: 1.8 3.0 3.8 4.4 5.4 5.7 ... 3.9 2.7 1.9 1.3 0.3
  - France: 2.4 4.1 5.6 6.4 8.0 8.6 8.7 6.2 4.5 3.1 2.3 0.6
  - United Kingdom: 3.3 3.9 5.0 4.9 5.6 6.9 7.2 3.6 3.0 2.2 2.3 1.3
  - United States: 1.2 2.6 3.7 4.8 5.8 7.1 7.4 5.9 4.5 3.7 2.6 1.3
  - Averages and medians:
    - Average (PPP GDP weighted): 1.7 3.3 4.5 5.0 5.8 6.7 7.0 4.6 3.9 2.8 2.0 0.9
    - Average (unweighted): 2.2 3.7 4.8 5.1 5.6 6.4 6.6 4.8 3.3 2.0 1.5 0.8
    - Median: 2.2 4.0 5.1 5.1 5.7 6.6 7.2 4.9 3.5 2.2 1.7 0.8
- Appendix II — public health expenditure projections (In percent of GDP) — selected rows (baseline projections for 2010, 2015, 2020, 2030, 2040, 2050 and changes 2010 to 2030: baseline, optimistic, pessimistic):
  - Advanced economies (selected):
    - Australia: 6.5 7.2 8.0 9.6 11.0 11.6 Change, 2010 to 2030: 3.1 0.7 4.1
    - France: 8.7 9.5 10.4 12.2 13.7 14.6 Change, 2010 to 2030: 3.5 0.9 5.9
    - Germany: 7.9 8.8 9.7 11.6 13.3 14.4 Change, 2010 to 2030: 3.6 1.0 5.7
    - United Kingdom: 8.0 8.8 9.5 11.3 13.0 14.2 Change, 2010 to 2030: 3.3 0.8 4.9
    - United States: 6.7 7.3 8.7 11.4 13.4 14.9 Change, 2010 to 2030: 4.7 0.8 5.0
  - Emerging market economies (selected):
    - China: 2.2 2.4 2.6 3.1 3.8 4.4 Change, 2010 to 2030: 1.0 0.4 1.6
    - India: 0.9 1.0 1.1 1.3 1.5 1.8 Change, 2010 to 2030: 0.3 0.1 0.6
    - Brazil: 5.1 5.5 6.0 7.2 8.5 10.1 Change, 2010 to 2030: 2.1 0.8 3.7
  - Aggregates:
    - Average: 5.2 5.7 6.4 7.9 9.2 10.2 Change, 2010 to 2030: 2.6 0.7 3.8
    - Advanced: 6.9 7.5 8.5 10.5 12.2 13.5 Change, 2010 to 2030: 3.7 0.9 5.0
    - Emerging: 2.7 2.9 3.2 3.8 4.5 5.2 Change, 2010 to 2030: 1.1 0.4 1.9
    - G-20: 5.3 5.7 6.5 8.0 9.3 10.4 Change, 2010 to 2030: 2.7 0.7 3.8
    - Advanced G-20: 7.0 7.6 8.7 10.8 12.5 13.9 Change, 2010 to 2030: 3.8 0.9 5.1
    - Emerging G-20: 2.6 2.9 3.1 3.7 4.4 5.2 Change, 2010 to 2030: 1.1 0.4 1.9
- Appendix IV — methodology highlights for cost estimates:
  - Patient cost-sharing back-of-the-envelope example:
    - Assume average public spending is 6!/2 percent of GDP and outpatient care makes up 30 percent of this spending.
    - Price elasticity of demand for outpatient care assumed -0.2.
    - An increase of 5 percentage points in the coinsurance rate for outpatient care would reduce spending by 0.1 percent of GDP.
    - If the bottom income quintile is exempt and accounts for 20 percent of utilization, estimate reduced by 0.02 percent of GDP.
    - Note: cross-price elasticities and substitution/complementarity effects may alter savings.
  - Provider payment reforms:
    - Evidence suggests switching from fee-for-service to prospective payment methods reduce spending between 10 and 20 percent (Eggleston and Yip, 2004).

*Source: TNM/10/16, International Monetary Fund, Fiscal Affairs Department, "Health Care Spending Issues In Advanced Economies", Sections 1–3 and Appendices.*

### Section 1

### Health Care Spending Issues In Advanced Economies

### I. Recent Trends and Challenges
- Total health spending increased by more than 6 percentage points of GDP in the OECD between 1970 and 2007.
- Average public spending for health care increased by 3!/2–4 percentage points of GDP between 1970 and 2007.
- In per capita terms, real public spending on health care more than quadrupled between 1970 and 2007.
- Between 1980 and 2007 in OECD countries, the share of general government outlays spent on health increased from 8.4 percent to 14.8 percent.
- IMF (2010) projects public expenditures on health care to increase by over 31/2 percentage points of GDP by 2030 in advanced countries, to 10!/2 percent of GDP on average.
- Key demand- and supply-side drivers:
  - Ageing: elderly people consume more health services, on average.
  - Rising incomes: as countries grow richer, health care spending tends to rise proportionately more than income.
  - Technology: improved diagnostics and treatments (e.g., use of MRIs instead of x-rays) expand possible care and can raise costs reflecting quality improvements; future technological impacts on costs are uncertain.
- Institutional factors that shape how drivers affect expenditure include patient cost-sharing, tax treatment of private health insurance, and provider payment methods.
- Diversity in organization and financing of health care systems; financing and purchasing mechanisms are of greatest relevance for fiscal policy.
- Emerging economies: lower spending and less extensive coverage; priorities include expanding coverage at reasonable fiscal cost and improving efficiency and allocation toward public goods (for example, control of infectious diseases).

### II. Analyzing Health Spending
- Main analytical approaches:
  - Efficiency frontiers, cross-country comparisons, and benchmarking inputs and outcomes to identify outliers and potential reform areas.
  - Production function approaches and cross-country empirical studies (examples cited for developing and OECD countries).
  - Caveat: variation across countries in outcomes vs. spending may reflect unobserved heterogeneity (education, diet, lifestyle), not only health-system inefficiency.
- Practical benchmarking can use scatter plots or bar charts to detect outliers and contributing policies.
- Key indicators to examine and interpret:
  - Salaries as a percentage of public health expenditure:
    - High share may reflect employment levels or salary levels; examine numbers of physicians and nurses per capita and physician payment methods (capitation, salary, fee-for-service).
  - Number and mix of physicians per capita:
    - Compare nurses per capita; examine medical school entry regulations and GP-to-specialist ratios (primary care often less expensive).
  - Number of outpatient and inpatient visits per capita:
    - High outpatient visits can signal low outpatient cost-sharing or high pharmaceutical cost-sharing (substitution effects); analyze cross-price elasticities.
  - Average length of stay (ALOS) in hospitals:
    - ALOS above 10 would be considered relatively high; high ALOS could reflect technical inefficiency, higher quality per discharge (lower readmissions), or a greater share of difficult inpatient cases; examine hospital reimbursement methods and medical protocols.

### III. Reform Options
- Overarching note: Both demand- and supply-side reforms can address inefficiencies and contain expenditure growth; supply-side policies often have greater impact once patients contact providers.
- Demand-side options:
  - Option 1: Increase patient cost-sharing
    - Rationale: insurance creates moral hazard; cost sharing balances moral hazard and consumption-smoothing through risk sharing.
    - Evidence: RAND Health Insurance Experiment estimated a price elasticity of demand of roughly -0.2 for outpatient and inpatient services; higher coinsurance reduced utilization without worsening health status except for the poor and the chronically ill.
    - Design considerations:
      - Exemptions for the poor and chronically ill.
      - Account for cross-price elasticities across insured services (some goods are substitutes, others complements).
      - Example offset: increased drug copayments may increase outpatient utilization (Gaynor, Li, and Vogt, 2006).
    - Country experience: many countries have cost-sharing below optimal; some (United Kingdom, Denmark, Netherlands) have no cost-sharing for primary care, specialist, or hospital visits; private insurance covering patient charges can blunt utilization incentives and create negative fiscal externalities.
  - Option 2: Eliminate tax exclusions for private health insurance
    - Rationale: tax-favored treatment reduces after-tax price of insurance, encouraging over-generous coverage and over-insurance; no clear market failure justifies favorable tax treatment.
    - Fiscal note: foregone revenues (tax expenditures) can be large.
    - Country experience: tax exemptions for private health insurance discussed extensively in the U.S. context—where it amounts to 1!/4 percent of GDP; subsidies for private insurance also exist in Australia, Denmark, and Greece.
- Supply-side options:
  - Option 3: Modify provider payments to impose a harder budget constraint
    - Major payment methods:
      - Salaries or budgets
      - Case-based payment (e.g., capitation, diagnosis related groups (DRGs))
      - Fee-for-service (FFS)
    - Incentive implications:
      - Salaries: incentivize care that does not require costly effort; encourage referrals; may deter treating sicker patients.
      - Fee-for-service: incentivizes delivering more services if priced above incremental cost.
      - Capitation: pays set amount per patient for a time period; encourages low-cost care and referrals and competition for patients.
    - In practice, mixed payment methods are common; payment design affects effort, referral patterns, and incentives to skimp on quality or over-provide services.
- Implementation note: After diagnosing sources of inefficiency with the indicators above, tailor policy recommendations to country-specific institutional factors; Appendix IV in the source provides examples of back-of-the-envelope costing for reform options.

*Source: TNM/10/16, International Monetary Fund, Fiscal Affairs Department, "Health Care Spending Issues In Advanced Economies", Section 1.*

### Section 2

### _tnm1016 - Section 2

### Hospital payment mechanisms and incentives
- Reimbursement at the hospital level may follow predetermined budgets, fee-for-service, or case-based payment based on patient characteristics.
- Budgets produce largely the same incentive effects as salaries.
- The most widely used form of case-based payment for hospitals is diagnosis-related groups (DRGs).
  - DRGs reimburse the hospital or outpatient facility a fixed amount to provide care based on the patient’s diagnosis at admission.
  - Incentives created by DRGs:
    - Encourage low-cost treatment and faster discharge.
    - Encourage providers to assign patients to a group with a higher reimbursement rate (up-coding or “DRG creep”).
- Each payment mechanism gives different incentives for quantity and quality of services; an optimal payment mechanism would be some mixture of methods.

### Efficiency and containment considerations for payment methods
- Shifts away from fee-for-service to case-based payments like DRGs are common to contain spending.
- While case-based payments can restrain expenditure growth, providers can still increase quantities through increasing admissions; spending may rise with DRGs compared to fee-for-service or budgets.
- Implementing and operating DRGs is highly data-intensive and requires periodic updates, affecting system efficiency.

### Country experience with bundled budgets and payment constraints
- U.K. Fundholding scheme (1990s, ‘internal market’ reforms):
  - GPs were allocated a budget to treat their registered patients, including purchase of hospital care.
  - Expected effects: GPs arrange cost-effective care and be more economical in referral decisions.
  - Observed: reduced prices and referrals, but quality may have suffered.
- European Union countries in the 1980s:
  - Governments tried budget caps and constraining fee growth.
  - Enforcing budget caps on payments to hospitals or an entire component of spending will contain spending by construction, but effect on quality is less clear-cut.
- Constraints on salaries and fees can produce adverse consequences:
  - U.S. government reimburses physicians much less for treating Medicaid patients than for Medicare patients; Medicare rate is still considerably less than private insurance rates.
  - Some physicians no longer treat Medicaid patients.
  - It remains to be seen whether the reduction in Medicare fees under the new U.S. health care reform will lead to similar refusals to treat Medicare patients.

### Option 4: Improve cost-effectiveness evaluations for new and existing technology
- Purpose: improve allocative efficiency of health spending by seeking the greatest overall benefit from limited government resources.
- Jena and Philipson (2007, 2008): establishing a cost-effectiveness threshold effectively fixes the price level of new treatments.
  - Trade-off: low price level may reduce incentives for innovation; outcome depends also on level of government funded R&D.
  - For small purchasers, incentives-for-innovation concerns are less of a concern.
- Cost-effectiveness analysis role:
  - Important to determine optimal threshold for a quality-adjusted life year (QALY).
  - Governments can vary coinsurance rates inversely with cost-effectiveness (Cutler, 2004): patients pay larger fraction for less cost-effective treatments and smaller fraction for more cost-effective treatments.
- Country experience:
  - Some countries (United States) do not employ formal cost-effectiveness analysis for public reimbursement decisions.
  - Many countries (United Kingdom, Australia, Netherlands, Sweden, Finland) have government bodies assessing cost-effectiveness.
  - U.K. National Institute for Health and Clinical Excellence (NICE) implicitly defines a threshold for willingness to pay per QALY; treatments not meeting incremental benefit vs incremental cost threshold will not be funded by the U.K. National Health Service.

### Option 5: Reduce generosity of the publicly financed benefits package
- Background:
  - Some treatments are too expensive for governments to finance for everyone; access is rationed by waiting lists or other regulations.
  - Rationing by non-price mechanisms or by prices is necessary because demand far outstrips supply.
  - Dental care may be a candidate for removal from public packages because it has less of an insurance element: uncertainty and expected spending are relatively low, making self-insurance and pre-payment more economically rational.
- Country experience:
  - In most cases, scope of publicly financed benefits expands.
  - Example: addition of prescription drugs to Medicare in the United States in 2003. When Medicare was enacted in 1965, prescription drug spending was low and excluded; later drug development and private insurance expansion changed coverage patterns.
  - Debate continues on the policy’s impact on efficiency.

### Conclusion (section summary)
- The note introduces health spending issues and provides options for analyzing and containing public health expenditures.
- The central challenge: implement policies to realize benefits of technological improvements without sacrificing fiscal sustainability.

### Appendix I — selected international public health expenditure levels (In percent of GDP)
- Selected country examples, change columns and summary statistics (excerpted):
  - Australia: 1.8 3.0 3.8 4.4 5.4 5.7 ... 3.9 2.7 1.9 1.3 0.3
  - France: 2.4 4.1 5.6 6.4 8.0 8.6 8.7 6.2 4.5 3.1 2.3 0.6
  - United Kingdom: 3.3 3.9 5.0 4.9 5.6 6.9 7.2 3.6 3.0 2.2 2.3 1.3
  - United States: 1.2 2.6 3.7 4.8 5.8 7.1 7.4 5.9 4.5 3.7 2.6 1.3
- Averages and medians:
  - Average (PPP GDP weighted): 1.7 3.3 4.5 5.0 5.8 6.7 7.0 4.6 3.9 2.8 2.0 0.9
  - Average (unweighted): 2.2 3.7 4.8 5.1 5.6 6.4 6.6 4.8 3.3 2.0 1.5 0.8
  - Median: 2.2 4.0 5.1 5.1 5.7 6.6 7.2 4.9 3.5 2.2 1.7 0.8

### Appendix II — public health expenditure projections (In percent of GDP)
- Baseline projections for 2010, 2015, 2020, 2030, 2040, 2050 and changes 2010 to 2030 (baseline, optimistic, pessimistic) — selected rows:
  - Advanced economies (selected):
    - Australia: 6.5 7.2 8.0 9.6 11.0 11.6 Change, 2010 to 2030: 3.1 0.7 4.1
    - France: 8.7 9.5 10.4 12.2 13.7 14.6 Change, 2010 to 2030: 3.5 0.9 5.9
    - Germany: 7.9 8.8 9.7 11.6 13.3 14.4 Change, 2010 to 2030: 3.6 1.0 5.7
    - United Kingdom: 8.0 8.8 9.5 11.3 13.0 14.2 Change, 2010 to 2030: 3.3 0.8 4.9
    - United States: 6.7 7.3 8.7 11.4 13.4 14.9 Change, 2010 to 2030: 4.7 0.8 5.0
  - Emerging market economies (selected):
    - China: 2.2 2.4 2.6 3.1 3.8 4.4 Change, 2010 to 2030: 1.0 0.4 1.6
    - India: 0.9 1.0 1.1 1.3 1.5 1.8 Change, 2010 to 2030: 0.3 0.1 0.6
    - Brazil: 5.1 5.5 6.0 7.2 8.5 10.1 Change, 2010 to 2030: 2.1 0.8 3.7
  - Aggregates:
    - Average: 5.2 5.7 6.4 7.9 9.2 10.2 Change, 2010 to 2030: 2.6 0.7 3.8
    - Advanced: 6.9 7.5 8.5 10.5 12.2 13.5 Change, 2010 to 2030: 3.7 0.9 5.0
    - Emerging: 2.7 2.9 3.2 3.8 4.5 5.2 Change, 2010 to 2030: 1.1 0.4 1.9
    - G-20: 5.3 5.7 6.5 8.0 9.3 10.4 Change, 2010 to 2030: 2.7 0.7 3.8
    - Advanced G-20: 7.0 7.6 8.7 10.8 12.5 13.9 Change, 2010 to 2030: 3.8 0.9 5.1
    - Emerging G-20: 2.6 2.9 3.1 3.7 4.4 5.2 Change, 2010 to 2030: 1.1 0.4 1.9

### Appendix IV — methodology highlights for cost estimates
- Patient cost-sharing back-of-the-envelope example:
  - Assume average public spending is 6!/2 percent of GDP and outpatient care makes up 30 percent of this spending.
  - Price elasticity of demand for outpatient care assumed -0.2.
  - An increase of 5 percentage points in the coinsurance rate for outpatient care would reduce spending by 0.1 percent of GDP.
  - If the bottom income quintile is exempt and accounts for 20 percent of utilization, estimate reduced by 0.02 percent of GDP.
  - Note: cross-price elasticities and substitution/complementarity effects may alter savings.
- Provider payment reforms:
  - Evidence suggests switching from fee-for-service to prospective payment methods reduce spending between 10 and 20 percent (Eggleston and Yip, 2004).

*Source: _tnm1016 - Section 2 (IMF Technical Notes and Manuals 10/16, 2010).*

### Section 3

### _tnm1016 - Section 3

### Managed care evidence and savings
- In one study, managed care reduced spending between 30 and 40 percent for heart attack patients relative to traditional indemnity insurance that paid providers fee-for-service (Cutler, McClellan, and Newhouse, 2000).
- These reductions in spending occurred through reduced unit prices rather than lower quantities.
- There was no evidence that outcomes were adversely affected in the study referenced; elsewhere the text notes "there was little evidence that health outcomes suffered."
- Practical implication noted: "If a country were contemplating such policy changes, one might apply these percentage reductions to arrive at a ballpark estimate."

### European Union: 1980s and 1990s cost-containment experience
- 1970s rapid growth of public health spending prompted provider payment reforms in many EU countries in the 1980s.
- Supply-side policies implemented:
  - Constraining reimbursement for physician fees and salaries, pharmaceuticals, and other technology.
  - Limiting the number of providers and hospital capacity.
- 1990s introduced demand-side measures:
  - Increasing patient copayments and coinsurance, mostly applied to pharmaceuticals and dental care, and also to ambulatory and hospital services.
  - These charges were relatively low, exemptions were widespread, and demand was inelastic, so their impact was relatively limited.
- Competition reforms (United Kingdom, 1991–1997):
  - Attempted to create an "internal market" to increase hospital competition within the publicly financed National Health Service (NHS).
  - District Health Authorities were ineffective due to weak financial incentives.
  - GP fundholding was more successful: GPs allocated budgets to purchase hospital services and saw positive effects including reduced hospital prices, lower waiting times, decreased referral rates, and a reduction in prescription drug spending (described as "a once-and-for-all decrease").
  - No evidence GP fundholding led to selection of healthier patients.
  - Some evidence that 30-day mortality rates after a heart attack admission "suffered" (Cookson and Dawson, 2005).

### Japan: 1990s reforms and measures
- Copayment policy:
  - Reforms in the 1990s brought copayment rates in Japan to one of the highest among OECD countries, to 30 percent in 2002.
  - Separate proportionate copayments were introduced for the elderly in 2000.
- Fee schedule and price control:
  - Medical unit price increases were strictly controlled in biennial revisions of the fee schedule.
  - Revisions in the fee schedule between 1990 and 2006 contributed to a decrease in national medical expenditure by 0.1 percentage point during the period (Jones, 2009).
- Long-term care insurance:
  - A new public insurance for long-term care was established in 2000, mandating compulsory premium contribution from those older than forty.
  - The scheme aimed to achieve cost savings by shifting long-term care from hospitals.

### United States: role of managed care in the 1990s and after
- Managed care was the key contributing force behind the slowdown in the growth of private health spending in the United States in the 1990s, when it grew at the same rate as GDP.
- Managed care organizations can use bargaining power, when covering a large population share, to negotiate lower prices than traditional private insurance.
- Mixed evidence on health outcomes:
  - Some consensus that managed care has not led to large deleterious impacts on health status (Cutler, 2004).
  - One sample of heart disease patients showed HMOs reduced expenditure between 30 and 40 percent relative to traditional insurance; savings driven by lower unit prices with little evidence that health outcomes suffered (Cutler, McClellan, and Newhouse, 2000).
  - There is evidence that managed care reduced the adoption of a range of medical technologies (Mas and Seinfeld, 2008).
- Evolution of managed care:
  - Today managed care remains a key component of the U.S. health system, but it is far less restrictive than in the past, partly reflecting patient resistance to restrictions on choice under managed care (Enthoven and others, 2001).
  - Partly as a result, private health spending has again grown faster than GDP since 2000.

### Key takeaways for policy design
- Provider payment reforms and supply-side constraints can slow public health spending growth.
- Demand-side measures (copayments, coinsurance) have limited impact when charges are low, exemptions are widespread, and demand is inelastic.
- Introducing competition and budgetary incentives for primary care purchasers (e.g., GP fundholding) can reduce prices, waiting times, referrals, and prescription drug spending, but may carry risks for some quality outcomes (e.g., 30-day mortality after heart attack).
- Managed care can achieve large spending reductions (between 30 and 40 percent in some heart disease samples) mainly via lower unit prices, with limited evidence of adverse outcomes in the cited studies.
- Japan’s combination of higher copayments (30 percent in 2002), strict fee-schedule price control, and a public long-term care insurance (compulsory contributions from those older than forty) contributed to slowing medical expenditure growth (fee-schedule revisions reduced national medical expenditure by 0.1 percentage point between 1990 and 2006).
- For rough fiscal estimates, apply observed percentage reductions (e.g., "between 30 and 40 percent") from empirical studies as ballpark figures when considering policy changes that affect provider payments or insurance organization.

*Source: _tnm1016 - Section 3*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/tnm/2010/_tnm1016.pdf_