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Nothing comes from nothing: the case of health

Posted on December 06, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Health is better than gold or ‘is fearr an tsláinte ná an t-ór’ as the saying goes in Irish. Economists and statisticians tend to think of health as a cost as well as a sphere of activity involving consumption of resources in the present time. Health, however, has two dimensions: (i) It is a state of well-being for which all strive because it concerns body and mind and goes beyond narrow notions of ‘satisfaction’ or ‘utility’; and (ii) It involves work, behaviour, caring, time and money which enables people to be healthy not just this year but for years to come (hence it is an investment activity as well as a consumption activity).

Great strides have been made in recent centuries as diet, medicine and other interventions have transformed lives, relieved some forms of pain and greatly extended life expectancy. This is evident, for example, in the falling number of early childhood deaths compared to even 30 years ago. Many more babies born today will reach the age of 100 than was the case in 1915 – unless obesity, some environmental or nuclear catastrophe strikes the world to such an extent that recent trends are reversed.

What makes for healthy individuals and healthy societies (the two are related) is complex. It involves, among other factor, genetic disposition, environmental factors, lifestyles as well as health systems that provide the information, support and services needed to enable people to live healthy lives.

The establishment, in 1948, of the ‘National Health Service’ in the United Kingdom – in face of fierce occupational and political opposition – was a landmark in European history and followed the extension of free public health services in many other countries.  The Republic of Ireland was less fortunate in that fierce ecclesiastical, occupational and political opposition to a mild and extremely partial application of a ‘national’ health service floundered in the early 1950s. Instead we got private health insurance (in 1956) and an evolving patchwork of private, voluntary and public health services and entitlements over the decades. To say that health is ‘free’ for anyone would be a huge exaggeration. Waiting lists, exclusions of particular treatments and items from the public system as well as the introduction of prescription charges for all ensure that there is a significant and growing amount of ‘out-of-pocket’ expenditure by residents in the Republic of Ireland to which may be added a complex, overlapping and increasingly expensive system of private health insurance. Close to 50% of the population avails of some form of private health insurance. The corresponding figure in Northern Ireland is dramatically lower reflecting the fact that the NHS still provides a universal service – challenged and severely stressed as it is.

Chart 1 Comparing different countries in the OECD it is noticeable that, overall, the Republic of Ireland is about average in terms of current spending on health as a percentage of GDP. Using GDP as a measure, the Republic of Ireland is below the OECD average while using GNI it is above. As a share of the total health spending, private expenditure in the Republic of Ireland was 31.5% - just above the OECD average of 27%. The USA is a complete outlier with a much higher level of total spending and over 50% of this coming from private sources. Even still, total public spending on health (non-capital) is higher in the USA than it is in the Republic of Ireland.

A crude measure of health outcome is estimated life expectancy at birth in a recent year. Chart 2  shows some variation in life expectancy among both males and females for the 28 member states of the EU in 2013 with some eastern-central European countries showing the lowest levels of expectancy and some Mediterranean countries showing the highest. Clearly, a variety of factors impact on life expectancy. The Republic of Ireland is above the EU28 average but below the UK and France. Life expectancy among males in the Baltic states is particularly low (in absolute terms as well as relative to females in those countries) which shows that, among other factors including the transition from ‘communism’, austerity has worked.

If one were to contrast spending, over a long period, with health outcomes it does not appear that the Republic of Ireland is too much out of line internationally. However, a number of points are worth noting:

  • Given the relatively younger population in Ireland one would expect, other things the same, that total spending would be somewhat lower than what it is.
  • Some components of public spending – according to Eurostat data sources not shown here – seem to be higher in the Republic of Ireland. These include the cost of hospital outpatient services as well as the cost of medications.
  • The share of private spending is significantly higher in the Republic of Ireland (although Portugal and Greece had higher shares of private spending in 2013 which show that austerity is working in those countries).
  • It is possible that smaller countries with more dispersed populations have somewhat higher health costs (however, this is unlikely to have a major impact on the overall picture).

In a recent presentation to the Irish Nurses and Midwifes Organisation (INMO ) together with a colleague of the NERI I presented an overview of health spending and demographic change. The presentation is available here . Professor Charles Normand of Trinity College Dublin presented on models of future funding including possible solutions. His presentation is here . The key message in the latter is that “Nothing comes from Nothing”. While there is much that can be done to inform and educate people as well as act to prevent or reduce particular illnesses it remains necessary to spend a significant portion of GDP on health. All the indications are that this proportion will rise over time especially as populations age and as income (hopefully) rises.

There is much that policy makers in the Republic of Ireland can do to improve health outcomes as well as ensure a fairer distribution of health care in the population including:

  • Education throughout life to improve health awareness and behaviour (education, itself, has been shown to have an independent positive impact on health over and above specifically designed education for health).
  • Policies to promote greater social and economic equality in the medium-term (these have been shown to be correlated with good health outcomes).
  • Early intervention and screening to keep people out of hospitals which are very costly places to run.
  • Employee-led innovation at all levels of the health service to reduce costs and improve patient care.
  • Other measures to reduce cost, bureaucracy, waste and duplication.
  • More convincing and effective measures to control and reduce medication costs which are a multiple of levels across the border in Northern Ireland.

All of the above could help in the short, medium and long-term to reduce public and private spending on health. However, it is unavoidable that health spending will have to rise especially in areas of acute need such as early dental care and monitoring, mental health services for teenagers, eldercare in the community, long-term nursing care where necessary and community health care.  Emergency or reactive supplementary estimates have been a feature of recent years. A better way is to plan for the future and invest in the social infrastructure to effect change.    When the next recession occurs the Irish health service would be a stronger position to meet the challenge and avoid extremely costly and damaging decisions to postpone programmes or investment as happened in the late 1980s and, again, in 2008-2014.  As in other countries, we are faced with tough choices and tradeoffs. We can go down the road of continuing tax cuts and hollowing out of the revenue base while moving away from a European model of public service, or, we can pay for a decent, efficient and well run health service.

We can have a world class single-tier universal health service if we really want it. (It does not have to be that complicated.) Or, we can muddle through with a lopsided three-tier system. Those with private health insurance continue to be stay in the first class lounge of the boat; those who cannot afford private insurance but are not eligible for a medical card are relegated to second class; and everyone else – those with medical cards are sent to third class. This is not a model worthy of the aspirations of the framers of the Democratic programme in 1919 or, indeed, the architects of the 1948 NHS in the UK.

Posted in: Government SpendingNorthern Ireland Taxation

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