A Costly Health Service?

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hospitalbeds2There are assertions that Ireland has a very costly health service; that we spend a lot but get little to show for it. This post will look at claims that we are high spenders when it comes to health. The fact is that we are not extremely high spenders but that shouldn’t be interpreted as meaning that our problems are automatically due to lack of resources.

The CSO has adopted a new methodology for categorising health expenditure: the System of Health Accounts. Since it was published in December of last year, a number of commentators have used the data to claim that we are one of the highest spenders in the OECD. In yesterday’s Sunday Business Post it was claimed:

‘We are spending considerably more than the vast majority of OECD countries and the wealthy European countries.’

Depending on the number used this is either true or not so true. That’s the problem with such statistics – it can tell you a whole number of different things at the same time.

We spend considerably more if we take the total level of spend – both public and private expenditure. The latter includes out-of-pocket expenses (GP visits, prescription medicine) and health insurance payments.

health1

The above measures spending on a per capita basis using PPPs (to better compare for living standards and currency movements). It does appear, using total public and private expenditure, that we spend a lot – the fourth highest in the EU-15, well above the average; nearly 20 percent higher.

However, when we isolate public spending, the situation looks a bit different.

health2

Ireland falls to mid-table, still above the EU-15 average. However, we are now 8.7 percent above average. Of course, if you squeeze public spending – especially in the context of an increasing population and a rising elderly demographic – you will get a rise in private spending. This is all the more the case with the rising costs of health insurance.

But that’s in 2013. What’s been happening since?

  • Irish health spending has fallen by 3.3 percent up to the 2016 estimates.
  • In the five EU-15 countries reporting for 2014, health spending per capita increased by 2.4 percent.

This is just an exercise: let’s assume that health spending throughout the EU-15 increased by 2.4 percent annually up to 2016. With Irish health spending falling, we’d find Ireland below the EU-15 average. We don’t know if this is the case but the early evidence is that health spending in the EU-15 and Ireland are going in opposite directions.

When we turn to the Eurostat breakdown of health expenditure we can get further insights into Irish spending compared to the rest of the EU-15. This is a different method than the System of Health Accounts but it will be sufficient for comparative purposes.

health3

The Eurostat data shows that Irish expenditure (this time measured as a % of GDP – Irish GDP is adjusted for multi-national accounting), is above the EU-15 average. But there are two significant spending differences:

  • Ireland spends a considerable amount through outpatient services – nearly 50 percent higher than the EU-15 average (in 2013, this would amount to approximately €2 billion more than the EU-15 average).
  • On the other hand, spending on hospital services is well below EU-15 average – in 2013, this would have been approximately €2.6 billion less than the average spend of other EU-15 countries.

It is difficult to know what explains this. Is the high spending on outpatient services evidence of the impact of private incentives and the interpenetration of the public and private sectors driving up costs? There is little debate on this issue so far in the campaign.

It is likely that the Irish numbers above will fall as GDP grows and health expenditure increases are minimised. However, there is an important point to be made. All things considered, Irish health expenditure should be less than our European counter-parts given our lower elderly demographic. How much less is difficult to say and, again, research on comparative demographic drivers would be helpful in constructing an evidence-based approach.

However, it is also clear that if you starve a service of resources, especially when that service is managed in a sub-optimal manner, the deficits will multiply and more people will be driven into private markets which will raise total expenditure. While the CSO warns against reading too much into this historical trend (as the 2013 data constitutes a break in the series owing to the use of the new method) it gives a sense of what’s happening with expenditure. Public spending on health makes up approximately 70 percent of all health spending (the remainder being out-of-pocket expenses and health insurance. Between 2008 and 2013:

  • Public health spending has fallen by 3.5 percent
  • Private spending on health has increased by over 50 percent

None of the above should be taken as an argument for ‘throwing money’ at the health services. But it is an argument to both resource and reform. It is also an argument to identify the problem correctly and to take care with the data. Our health system is costly but not overly so. It looks like there is an inefficient allocation of resources (e.g. between public and private medicine). And suppressing resources without addressing reform will only exacerbate the problems.

Over the last five years we didn’t get reform – we got cuts. Now can we have a debate on the real issues in the system, the real reforms that are needed and the resources that can make a real difference?

Or is that possible in the middle of a general election?

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