The Cost of Our Health

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Do we spend too much on healthcare?  The EU Commission seems to think so.  In their country-specific recommendations for Ireland they state:

‘Even though Ireland has a relatively young population, public healthcare expenditure was among the highest in the EU in 2012 at 8.7% of GNI, significantly above the EU average of 7.3%.’

The implication is that our spending on healthcare is 16 percent above EU average levels.  What more justification does the Government need to continue cutting our health services than to get a recommendation from the EU?

There’s only one problem.  The EU Commission numbers are wholly unreliable and not a proper representation of health spending in the EU.

Before getting into the EU numbers, let’s see if we can discover just how much Ireland and other EU countries spend on health care by referring to the OECD’s Health at a Glance.

There are two measurements that can be used; first, health spending as a proportion of economic output.  The latest year they have data for is 2011.  To compensate for the fact that GDP is not a good measure for Ireland, I have used the Irish Fiscal Advisory Council’s hybrid GDP which measures fiscal capacity.  This hybrid measurement stands between GDP and GNP.

healthEx1

Ireland is just below the average expenditure of other Advanced European Economies (i.e. EU-15) – but there is a major caveat which I will refer to below.  It should be noted that if we used a straight health spending as a percentage of GDP, Irish spending would be 8.9 percent of GDP.  Of course, benchmarking any expenditure against GDP has its problems, especially when a Government has been pursuing austerity policies that actively reduce the GDP.

For an alternative view, we can turn to the OECD’s measurement of healthcare expenditure per capita, using purchasing power parities to account for differences in currency and living standards.

healthEx2

When we look at this measurement we find that Ireland falls well below the mean average of other EU-15 countries.  The only countries that spend less than us are other peripheral countries.

Of course, this was in 2011.  The Department of Public Expenditure and Reformestimates that between 2011 and 2014, health spending will fall by a further 8.3 percent.  With the population rising, we should see health spending per capita fall even further.

On these OECD measurements Ireland is either average or substantially below-average when it comes to health spending in comparison with other countries.  Now, let’s go back to the EU Commission’s numbers.

First, the EU rarely uses the GNI measurement (Gross National Income is essentially GNP plus EU transfers).  In fact, there is no mention of GNI in any of the country specific recommendations for the other EU countries. In their twice-yearly Statistical Appendix, which publishes 62 measurements (GDP, wages, consumption, investment, exports, budget deficits) GNI is not referred to once.  GNI is only used once in the Irish county specific recommendation – for health spending comparison.

So why would the EU use GNI to make a point about health spending?  If there was input from our own Government, it could have been inserted to justify their continued determination to cut health spending. But to limit the domestic fall-out, our government gets the EU Commission to say it.  Then they can claim to the masses that they are being put under pressure by Brussels.  It’s all a bit of choreography.

Second, for many countries, Eurostat national accounting methodology excludes significant amounts of health expenditure from Government books.  For instance, under the OECD measure above, German per capita health spending is nearly 40 percent higher than Ireland.  But under the EU measurement German per capita spending is below Ireland.  What accounts for this?  Eurostat methodology.

For example, Eurostat data shows that there is almost no one working in German hospitals – no nurses, doctors, specialists, porters, etc.  Expenditure on wages in hospital services is so low that it comes up as 0 percent in the Eurostat tables.  This is because much of German health expenditure is ‘off-the-books’; it is spent through arms-length quasi-public corporations.  These are not considered part of the public sector, even though they deliver public services. These are funded through mandated social insurance payments (German employers and employees pay seven and eight percent of wages respectively on social health insurance) but the expenditure is not on the public books.  It is a similarly situation in Belgium where there are almost no wages recorded as being spent in the health system.

This is not a scam.  It merely reflects the fact healthcare systems in many EU countries are produced by non-public sector agencies and funded through social insurance (PRSI) payments, rather than Exchequer funds.  The OECD measurement, however, is not based on national accounting – rather it captures all public (i.e. tax/social insurance funded) expenditure.

So when a comprehensive measurement of health expenditure is considered, Ireland is relatively low.  But now let’s go back to that caveat I referred to earlier.  Ireland has a relatively young population.  This means that we don’t experience the same age-related costs.  It is often stated that Irish spending on healthcare is very high when factoring in age.  Is this the case?

I came across a study in Finland which broke down health expenditure per age group.  It shows that health spending per capita on elderly is nearly ten times that of young people.  So let’s compare Finnish and Irish health expenditure factoring in age.

First, let’s bring heath spending up-do-date.  Keeping the purchasing power parities constant and allowing for population increase, we can estimate that in 2014:

  • Irish per capita health spending is now €2,241 after the planned cuts.
  • Given that Finnish current spending (excluding interest payments) will rise by 11 percent as per EU estimates, we assume a 5.5 percent increase in health spending.  This brings their spending per capita to €2,648.

Irish spending is 15.3 percent below Finnish levels.  Now, let’s apply age-related spending ratios.  This study uses US dollars and it is a bit dated; however it is the only study that provides a detailed age breakdown.  Besides, we’re just adjusting for age ratios and other, less detailed studies show similar ratios (e.g. this IMF assessment of German age-related health spending).   .

If we assume the same spending and adjust for total population, we find the following.

healthEx3

Never mind the absolute numbers – it is the ratio of spending that we’re concerned with here.  Irish spending should be higher among the under 30s, reflecting a youthful demographic.  However, given a more elderly Finnish population, spending should be substantially higher among the over 60s.  In total, Irish spending should be 15 percent below Finnish levels.  And as we estimated above, Irish spending actually is 15 percent below Finnish spending – measured on a per capita basis.

This is not conclusive – it is only indicative.  More research needs to be done on age-related expenditure in other EU countries and Ireland to provide a better measurement.

Nor does this measure health outcomes.  Do Finns get a better health service than the Irish for the same expenditure?  Do they get more services?  The Irish do spend more privately (private insurance, GP care, prescription medicine).  Again, more research is needed on this.

The point being made in this post is that the EU Commission’s health spending figures are unreliable and not representative of the full picture.

This is not an argument that all is well in the Irish health service.  Anything but.  We need structural reforms – in particular, abolishing the two-tier system.  We need free GP care and subsidised prescription medicine.  We need a more rational service infrastructure with key emphasis on primary care.

In short, we need reform, not more cuts.  And here’s a hint:  if you want to reform a service, go to the people who consume and produce that service.  We need a programme of employee-driven innovation and reform.  We need to establish action groups in communities to provide a bottom-up needs assessments.  We need the broadest possible democratic dialogue.

What we don’t need are contrived numbers that justify driving our health services into the ground.

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