OECD warns that government healthcare spending could become unsustainable

25 Sep 15

Advanced economies need to take urgent action to reform their health systems in order to address “unsustainable” costs, the Organisation for Economic Co-operation and Development has said.

A report by the think-tank forecast that public expenditure on health and long-term care in OECD countries could rise from around 6% of GDP today to almost 9% of GDP in 2030, unless governments can contain costs.

The report, Fiscal sustainability of health systems: bridging health and finance perspectives, said that healthcare costs were rising so fast in advanced economies that they will become unaffordable by the middle of this century without reforms.

However, information on actual spending may not always reach finance ministries in time for corrective action to be taken, the report noted.

“Health spending has risen faster than economic growth in all OECD countries over the past 20 years, and public funds still account for around three-quarters of health spending. Many countries remain heavily reliant on payroll taxes, which will decline as their populations age,” the report stated.

“Upward pressure on health spending comes from new technology in medical services, rising incomes driving higher expectations, and the growing needs of ageing populations.”

In Austria, the Czech Republic, Germany, Korea, Poland, Slovakia and Slovenia, more than 70% of government financing for health comes from payroll contributions. Other than in France, “sin taxes” in the form of higher value-added taxes on tobacco, alcohol or unhealthy foods account for a tiny fraction.

The think-tank said governments could ease the pressure on health budgets by being more explicit and selective in defining the services covered by public health systems.

This can be achieved by encouraging provider payment mechanisms that reward outcomes and by improving the way medicines are priced and reimbursed, the OECD suggested.

Advanced economies should also focus on setting clear spending targets, improving monitoring of spending and putting early warning systems in place to signal overspending and prompt corrective measures.

They should also adopt closer cooperation between budget and health ministries.

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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