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Ageing, Health Status and Determinants of Health Expenditure

Final Report Summary - AHEAD (Ageing, Health Status and Determinants of Health Expenditure)

Expenditure on medical treatment has tended to rise as a proportion of national income throughout the European Union (EU). There has been an element of uplift to the mean as countries with low proportions of spending, such as the United Kingdom, have faced political pressure to approach the average EU proportion of their national income on the provision of health services, medical treatment and long-term care. A particular concern is that, with an ageing population and therefore the prospect of more old people around, the pressures for expenditure on health care will increase further.

This issue is of concern both in its own terms and because of its fiscal implications. Rising health expenditures put pressure on the targets of the stability and growth pact. They also raise the question whether budgetary targets should be tightened ahead of projected growth in public expenditures, so as to 'save up' for future spending and keep expected future tax rates reasonably constant.

The AHEAD research team refined the existing estimates of the links between reported states of health and use of medical services, the link between health expenditure and fertility rates and the demands on health services made by non-native populations have been also taken into account. Specific attention has been paid to issues related to costs of care near death. Factors other than demand (such as methods of financial control) were explored as they influence the health spending. Scenarios have been developed including the standard deviations and confidence limits for predictions of key variables such as healthy life expectancy and demand-driven expenditure levels. This is to allow policy-makers to judge not only possible outcomes but also the risks surrounding them and to assess their implications.

The contemporary research acknowledges that improvement in health is the cornerstone of a successful demographic transformation as one consequence of improved health status is longevity phenomena (Sommestad, 2001). Strauss et al. (1998) differentiated prevalence of ill health among age groups showing that in developed societies health problems are felt primarily at older ages. A particular concern is that, with an ageing population and therefore the prospect of more old people around, the pressures for expenditure on health care will increase.

Despite improvement in the health status, more visible in Slovakia and Poland, slower in Hungary - differences between EU-15 and the new Member States are still significant. Simultaneously, in Baltic countries, represented in this research by Estonia and in Balkan countries (Bulgaria) stagnation and - in some diseases even deterioration - of the health status is observable. In Estonia, the threat is coming from increasing the risk of HIV / AIDS infections. These results implicates that activities in public health are needed in order to solve health problems of societies. In countries of Central Europe, activities in promotion of health and healthy style of living (non-smoking, decreasing food consumption and decreasing alcohol consumption accompanied by changing habits of alcohol consumption) and prevention of civilisation diseases should be broaden. In other countries, resources should be directed towards infectious diseases prevention, including HIV / AIDS. The process of rapid ageing of the societies draws attention to expenditure for prevention of disabilities related to chronic diseases, solving problems of long-term and palliative care. This implies increasing expenditures for public health that are very low in these countries (generally the level of health care funding is low). Assistance on the EU site could include setting priorities for public health programmes, e.g. in the framework of the open method of coordination, building better information services and analytic framework for the epidemiological research. Important factor in poorer countries that often face allocations problems is to increase spending to the most effective programmes. For the purpose of identifying efficiency and effectiveness of programmes, systematic evaluation of the programmes and benchmarking could be used.

On the one hand health has a positive and statistically significant effect on economic growth - a one year improvement in a population's life expectancy contributes to a 4 % increase in output. On the other hand, the economic situation is one of the famous determinants of health care expenditure. High economic growth rates facilitate the expansion of health care services, the reduction of waiting list for elective surgeries and the purchase of new technical equipment. As estimated by Schulz (2005) the relationship between GDP and health care expenditure can be shown by comparing the parameter values in EU countries, which in 2002 shows a high positive correlation. Yet, for time-series data, it is difficult to separate demand from supply related factors, since supply side factors are often not available, and those that are show little variance or are correlated with the income variable. As Khoman and Weale (2007) suggest perhaps the most important message which emerges from this work is that a variety of variables seems to influence health spending- and the influence of factors such as the share of the public sector in the total could easily be omitted from more mechanical calculations. The study suggests that institutional variables are of great importance. Finland is an acknowledged success story in having limited its health spending over the last ten years or so by means of institutional change.

However, the use of dummy variables to represent institutional differences is not completely satisfactory since a number of countries reported that they did not see institutional structures being as clear cut as the dummy variables themselves suggested. Thus, if institutional change is to be used as a means of limiting spending, careful case studies will be needed to identify more precisely the effects of different arrangements. Nevertheless, one institutional issue does stand out unambiguously.

Total spending on health is significantly and positively related to the share of health spending paid for by the public sector. This result is extremely intuitive and is likely to be of considerable importance in any future discussion of budgetary pressures associated with population ageing.