Fiscal Sustainability of Health Systems

How to Finance More Resilient Health Systems When Money Is Tight?

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Finding sufficient funds to pay for more resilient health systems is challenging in the current economic context. COVID-19 has shown the need for additional targeted spending on public health interventions, the digital transformation of health systems, and bolstering the health workforce. Rising incomes, technological innovation and changing demographics put further upward pressure on health spending. This could result in health spending reaching 11.8% of GDP across OECD counties by 2040.

This publication explores the policy options to finance more resilient health systems whilst maintaining fiscal sustainability. It finds that the scale of the additional health financing needs requires ambitious and transformative policy changes. Robust actions to encourage healthier populations and policies to reduce ineffective spending can put future health expenditure on a far gentler upward trajectory. These would enable spending to reach a more sustainable 10.6% of GDP in 2040.

Better budgetary governance is critical. It improves how public funds for health are determined, executed and evaluated. Therefore, a focus of this report is on how good budgeting practices can increase the efficiency of current public spending, and also enable more ambitious policy changes in the medium to longer-term. Findings of this report are targeted at health and finance policy makers, with improved dialogue between health and finance ministries especially important when governments are operating in a constrained fiscal setting.


Long-term projections: Different paths to fiscal sustainability of health systems

This chapter presents projections for health spending from public sources and government revenues through 2040, to assess the fiscal sustainability of health systems across OECD countries. A health spending projection model incorporates the effects of income growth, constrained productivity in health relative to other sectors, demographic changes, and technology. Government revenue projections combine past revenue trends relative to GDP growth with changes in tax bases due to population ageing. Combining these approaches, health spending from public sources is projected to grow around twice as fast as government revenues, on average over 2019-2040. As a result, health spending is projected to reach 20.6% of revenues by 2040, on average across OECD countries, up 4.7 percentage points from 2018. Results show that addressing fiscal sustainability requires whole-of-government policies that target the multiple drivers of health spending growth and improve the robustness of government revenues to an ageing population.


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