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The evolution of health expenditures in OECD´s countries:

Health Expenditures have been consistently increasing over the past decades. In this comment I´ll compare two OECD´s countries, in what concerns those expenditures, and I´ll take a closer look at how they have been behaving, in comparison with GDP.

As we´ll come to conclude, Sweden and the United States have quite different approaches regarding health systems. Still, neither can seem to escape this undeniable upward trend.

 

Fig. 1 – Total Health Expenditure as a % of GDPImage

 

As previously discussed, there´s an upward trend on health expenditures as a percentage of GDP.  It may be clearer for the US, but both countries seem to have been increasing this index since 1970. In this year, the swedish were spending pretty much the same as americans, given their countries GDP´s. 7,13% and 7,29% respectively. Then, by growing at an astonishingly higher average yearly rate, (2,32% against 0,92%), the United States ended up (forty years later, in 2010), with health expenditures as percentage of GDP of 17,61%, 8,05pp above Sweden.

One may well wonder about this undoubtful trend. Many have already done so.

When confronted with the data one gets nowadays, and specifically after checking those values out from 1970, it´s logical to recall the War in Vietname and the 1973 oil shock that so deeply affected Uncle Sam´s economy. But then we take a closer look at the data set as a whole, and end up concluding that this trend is actually really smooth. Moreover, it´s constant throughout these 40 years, which will lead us to let go the possibility that a serious drop in GDP, could explain these increases in total health expenditure as a percentage of GDP.

As a matter of fact, there are several reasons worth while to be pointed out. Newhouse´s research (1992) and Barros (in his book, “Economia da Saúde – Conceitos e Comportamentos”), are some of the scholars that first argued on the following theses.

So, why would health expenditures tend to increase faster than GDP, in any given country (or, at least, in any given OECD´s country). Ageing does play a role in this, but a small one, when compared to another really straightforward factor. Recently, people started getting health insurance for a lower price than before. All else equal, it´s really easy to understand that this will boost the demand for insurance, both public and private, thus increasing health expenditures.

Being all of this true, it´s relevant to mention another curious factor. If a couple of years ago, four doctors were needed to perform a really difficult X procedure, the truth is that, nowadays, that same X procedure will still tend to be performed by four doctors.  In other words, the productivity in this sector tends to rise at a much lower pace than in most other sectors in the economy, thus inducing an increase in relative prices, and its weight in GDP. This phenomenom is called the Baumol desease, and seriously affects health systems everywhere in the world.

Finally, there´s another quite straightforward factor that is said to account for most of the variation in health systems´ relative prices, which is technological progress. Eventhough it allows us to live longer, it ends up making us pay a premium.

Despite the fact that these two countries face the same upward trend we mentioned, it´ll be interesting to end this comment discussing their approaches (which are quite different) to Health Systems.

While in Sweden, Public Expenditure accounts for 81% of Total Health Expenditure, in the United States public insurers only provide 48% of the total.

Moreover, one knows that Scandinavian people are satisfied with their Health System, whereas in the US, Health Care is still a privilege for some.

            Eventhough I´m in no position to state which of this regimes is the best, it seems to me that, once again, the Scandinavian model of the Social State proves itself as a successful case study.

Image

 

Fig. 2 – Health Expenditure as a % of GDP, distributed by insurance provider

 

Francisco Farto e Abreu

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Author: studentnovasbe

Master student in Nova Sbe

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