Bold policies for more sustainable health spending

Health spending across OECD countries was at almost 9% of GDP before the COVID-19 pandemic, and total health expenditure could reach 11.8% in 2040 as OECD countries bolster health systems against future shocks.

Major policy interventions are needed to ensure resilient health systems whilst maintaining fiscal sustainability. Four options can help governments move towards this goal:

• increasing government spending and allocating part of these additional funds to health;

• increasing the allocation to health within existing government budgets;

• reassessing the boundaries between public and private spending; and

• finding efficiency gains.

These four policy efforts to cut wasteful health spending are not mutually exclusive and should be combined with actions to promote healthier lifestyles both within and beyond healthcare.

Finding greater efficiency gains can be a politically appealing solution, but it requires bold reforms to deliver substantial cost savings. When the latest OECD projections examine health spending growth under a ‘cost control’ scenario as compared to the ‘base’ scenario, only very modest savings are generated. This cost control scenario reflects effective policies to increase productivity and rein in some healthcare demand. Applying this to total health expenditure, on average these savings shave only 0.1 percentage point off the health-to-GDP ratio by 2040 of GDP. With additional spending on strengthening health system resilience, total health expenditure is therefore still projected to increase to 11.7% of GDP on average (as opposed to 11.8% of GDP) in 2040.

Policies that improve healthy ageing are expected to provide somewhat larger savings. Applied to total health expenditure, they are expected to cut just over 0.4 percentage points from the projected 2040 share of GDP. Such policies include actions to promote healthier lifestyles both within and beyond healthcare. For example, cost-effective alcohol prevention policies include taxation, regulations on opening hours, advertising and drink-driving, alongside primary care interventions within the health sector. Many of these public health measures are included in the pinpointed smart investments to increase resilience, therefore these cost savings are expected to be realised as part of the roll-out of the additional spending.

While welcome, these are not enough in themselves to fundamentally alter the upward trajectory of health spending. After additional spending on strengthening resilience, total health expenditure is projected to increase to 11.4% of GDP on average in 2040. More ambitious and transformative policy changes are therefore needed to rein in health spending growth whilst still strengthening resilience and maintaining high quality, accessible care for all. If countries are successful in eliminating half of the ineffective and wasteful spending identified in earlier OECD analysis, then significantly larger cost savings can be realised – equivalent to 1.2 percentage points of GDP. This leads to a far more modest increase in total health expenditure, to an average of 10.6% of GDP in 2040.

Read more in: Fiscal Sustainability of Health Systems: How to Finance More Resilient Health Systems When Money Is Tight?