11.6.1. Health expenditure patterns and trends

OECD Health Data (2007) notes that a growing share of the economy is devoted to health across OECD countries. On average, per capita health spending increased by more than 80% in real terms between 1990 and 2005, outpacing the 37% growth in GDP per capita. In 1970, health spending accounted for just 5% of GDP. By 1990, this share had increased to nearly 7%. Today, it has climbed to 9%. One in four OECD countries now spends more than 10% of its income on health.

During the 1970s a combination of economic recession following the 1974 oil crisis and the growing burden of unemployment eroded the view that increased welfare spending was sustainable. This resulted in a widespread belief that the welfare state was in crisis. Yet these fears were not realized and social spending as a percentage of GDP remained relatively stable in many countries. Moreover, in those that have faced continual expenditure growth there have been no signs of collapse. While for other areas of government spending may have been rising at the pace of GDP, health care tends to grow at a faster rate. Thus, the conflict remains between the demand for and the supply of public revenue for healthcare. Countries are faced with the options of pursuing deficit financing (not a realistic option for countries that are part of the Economic and Monetary Union), cutting other areas of public expenditure, shifting to private sources of revenue or increasing efficiency (Mossialos and Dixon, 2002).

Rising health costs can be seen in all countries in Western Europe since 1980 as measured by the increase in the proportion of GDP spent on healthcare (OECD Health data 2007). And while there appears to be a stabilization of healthcare spending growth in many countries in the 1990s, this may not reflect success in controlling growth in health care expenditure but rather economic growth. For example, in Ireland, economic growth of 8.8% in the 1990s explains the apparent decline in the proportion of GDP spent on healthcare. In Finland, healthcare expenditure growth slowed in the 1990s as severe economic recession resulted in large-scale cuts in expenditure, especially public expenditure. Since the mid-1990s most countries have seen a gradual increase in expenditure, with especially high levels of spending reached in France, Switzerland, Iceland and Portugal to match Germany’s at over 10% of GDP. Meanwhile, following a period of relatively little growth, many central and Eastern European countries witnessed a resurgence in spending in the last decade (as measured by proportion of GDP) except Croatia, Estonia, Lithuania and Romania.

There appears to be significant variation across the region in per capita expenditure: the lowest is seen in Romania, Macedonia and Turkey, the highest in Luxembourg, Norway and Switzerland. Per capita health expenditure over the last 10 years clearly shows the consistent growth across the region; most notably in the countries of central and Eastern Europe. Though levels of expenditure among the highest spending European countries, such as France, Germany and Switzerland do not come close to that of the United States, which reached 15.3% of GDP in 2005, or $6401 per capita (OECD 2007).

Some explanations for the continued growth in healthcare expenditure across Europe include increases in labour costs, technological innovation and pressures from providers (Altman and Blendon 1979; Scitovsky 1984; Barer 1987; McGrail et al, 2000). There are also situational factors (e.g. political changes), structural changes (e.g. economic and demographic structure), changes in the labour market, the stability and capacity of political structures and institutions, environmental factors (e.g. changes in regulation, developments in science), and cultural factors (e.g. status of professionals and beliefs in government) that impact healthcare expenditure. The process of accession to the EU also played a significant role in the healthcare investment growth seen in the countries that joined in 2004 and 2007. Moreover, the methodological problems associated with measuring healthcare expenditure and drawing comparisons across countries, owing partly to differences in methods and accuracy of data collection, variable definitions and initial health system characteristics (public-private mixes, technology implemented) are also important to note (Kanavos and Mossialos, 1999).

Table 11.9. Total health care expenditure as a percentage of GDP, 1990-2004

Table 11.10. Total health care expenditure per capita ($PPP in USD), 1990-2005