Spending on health and the cost of providing universal care

Posted on July 05, 2014 by Daragh McCarthy


The recent release of OECD data external link on health care has highlighted the low level of expenditure on health in Ireland. As noted in the Irish Times external link, the state spent less on health than any other country in Western Europe during 2012. In this blog I attempt to put this stark fact into the context of spending on healthcare in recent years and briefly highlight some of the costs associated with funding a single tier system through a compulsory private insurance model.

Up to the onset of the economic crisis in 2008, health spending per capita increased considerably in Ireland. This period of rapidly increase spending was partly driven by the need to catch up after a sustained period of underinvestment in health facilities and services during the 1980s and early 1990s. Spending was reduced sharply in 2010 and 2011 as part of efforts to reduce large budgetary deficits.

The significant reduction in public spending has lead to a greater reliance on private spending;  since 2007, average private health insurance premiums have increased at an annual rate 10 per cent, while Ireland is one of only two countries in the EU 15 where out-of-pocket spending on health increased between 2000-2011. Relying heavily on private income under the current dual system of access raises issues around equity, affordability and the tendency for private providers  to focus on more lucrative elective care, leaving the risky procedures and  longer term care to the public system. In addition, the significant decline in the number of people covered by private policies in recent years raises a concern around the sustainability of the current model.

A high level of spending on healthcare does not guarantee positive health outcomes across the population. The healthcare system in the United States is the prime example of this point. The US spends a much greater proportion of its national income on health than other developed countries, but health outcomes compare poorly for many sections of the population. For instance, in 2013, 37 per cent of adults in the US reported going without recommended care, or opting against paying for prescribed medicine due to the cost. In the UK and Sweden respectively only 4 per cent and 6 per cent of those surveyed cited the finacial cost of treatment as a reason for going without.

Health systems matter. A funding model that supports a single tier health care system capable of providing universal access would be a drastic improvement on the current arrangement. There are many ways this type of system could be funded, and the current proposal to introduce a Dutch style model of healthcare must be considered in conjunction with other methods of providing universal care.

More detail on the plan to introduce a compulsory private insurance model in Ireland is needed before a definitive judgement on the government’s current proposal can be made; however, profit incentives in the health care sector are often incompatible with the goal of providing equitable and timely access to necessary services. Commercially driven health care systems are liable to suffer from the problem of supplier induced demand; trying to boost profits encourages providers to conduct procedures and tests that are financially rewarding even when the value of the tests on health care grounds is questionable. This places an additional upward pressure on costs and, ultimately, expenses for consumers. For instance, the rising cost of care in the Netherlands has lead to a sharp increase in the proportion of people forgoing treatment—6 percent in 2010 to 22 percent in 2013. With this issue in mind,  other models of service delivery should be reconsidered. Viable alternatives include a social insurance model funded by contributions from employers, employees and the state; government run insurance programmes with services delivered by private providers; or a tax based model similar to the National Health Service in the UK.

Regardless of the model chosen, introducing significant reform on the back of an extended period of reductions in current and capital spending on health care presents significant difficulties. In the four years immediately prior to introducing compulsory private health insurance in 2006, public spending per capita on health care rose by 35 per cent in the Netherlands. In Ireland, real spending on health per person fell 8.7 percent between 2008 and 2012—with further cuts in Budget 2015 a distinct possibility. Beyond the potential costs of establishing the proposed system, the annual costs of running private insurance models tends to be higher than other systems of universal care. The percentage of GDP spent on health care in countries that employ a universal health insurance model is above 11 per cent. The Netherlands spent 12 per cent of its GDP on healthcare in 2012, and there is considerable concern over the rate of increase in health care costs since the introduction of the private insurance funding model, with a recent report showing that 40 per cent of hospitals in the Netherlands are loss making.

Compared to most developed states Ireland has a young population, yet the health care system is struggling to provide access to services and adequate care under the current funding model. There is a clear need to reform the funding structure and the system of delivering services. The proposal to introduce a Dutch style model of healthcare must be considered in conjunction with other ways of providing universal care. Reforming the system to provide universal access on a cost neutral basis remains a huge challenge.

Posted in: Government Spending

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