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Canadian Institute for Health Information 1 Health Care Cost Drivers: Macro-Economic Trends Perspective January 27, 2011 2 Overview • Health spending and overall economic growth: how do they compare? • How do Canada’s spending trends compare with those of other countries in the OECD? • What are the effects of possible cost drivers? – – – – Inflation Population growth Aging Others • What are the key issues to watch for in the future? 3 General Context 4 Total Health Expenditure Growth Varied Throughout Three Distinct Periods Annual Growth Rates, Total Versus Real per Capita 18% 17.8 14% 10% 6% 2% -2% Total Real per Capita (Inflation and Population Adjusted) Forecast 5 P/T Government Spending on Health: Three Distinct Periods Per Capita in Constant 1997 Dollars $2,800 $2,600 $2,400 $2,200 $2,000 Forecast $1,800 $1,600 $1,400 $1,200 $1,000 1975 1980 1985 1990 1995 2000 Actual Forecast Trend (1975–1992) Trend (1993–1996) 2005 2010f Trend (1997–2008) 6 Canada: One of the Highest Growth Rates in Health Spending Among G7 Countries Average Annual Growth Rate of Real Total Health Expenditure per Capita, 1998 to 2008 4.9 5% 4% 3% 2% 2.3 2.4 France Italy 3.4 3.4 Canada† United States 2.6 1.8 1% 0% Germany Japan* United Kingdom 2008 is the latest year available. 7 Public-Sector Health Expenditure–to-GDP Ratio Rising Over Time Public-Sector Health Expenditure as a Proportion of GDP and GDP Growth 16% 14% 12% 8.3 10% 8% 6% 4% 2% 2010f 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 -4% 1978 -2% 1976 0% -6% GDP Growth GDP Growth Forecast Public-Sector Health Exp. to GDP Public-Sector Health Exp. to GDP Forecast 8 Total Health Spending as a Share of GDP Increased in All G7 Countries Total Health Expenditure as a Share of GDP 18% 16.0 16% 13.4 14% 12% 10.4 10% 8% 9.1 8.7 6.7 7.3 8.1 11.2 10.1 10.2 10.5 France Germany 9.0 7.7 6% 4% 2% 0% United Kingdom Japan* Italy † Canada 1998 2008 United States 2008 is the latest year available. 9 Public-Sector Shares Remain Unchanged Since 2000 Public Share of Total Health Expenditure, Selected Categories, 2000 Versus 2010 100% 99 91 99 91 75 80% 72 60% 35 40% 39 20% 10 7 0% Hospitals Physicians 2000 Drugs Other Institutions Other Professionals 2010f 10 Economic Context 11 Positive Correlation Between GDP Growth and Total Health Expenditure Growth Average Growth, 1998 to 2008 Annual Average Real Growth in Total Health Expenditure per Capita 10% KOR SVK TUR IRL 8% POL 6% GRC GBR PRT 4% DNK ITA BELNZL NLD LUXMEX USA CAN AUS CZE FIN SVN HUN SWE CHL ISL JPN FRA AUT CHEDEU 2% ESP OECD ISR NOR 0% 0% 1% 2% 3% 4% 5% 6% Annual Average Real Growth in GDP per Capita 12 More Economic Growth, More Spending on Health Canada, 1976 to 2010 Growth in Total Health Expenditure in Each Year, Current Dollars 20% 81 18% 82 80 16% 76 14% 79 12% 89 10% 0190 91 8% 09 6% 92 86 4% 93 2% 85 99 0208 03 06 05 98 04 07 97 10 96 94 78 77 83 00 88 87 84 Period of Fiscal Restraint 95 0% -5% 0% 5% 10% 15% 20% Growth in GDP in Each Year, Current Dollars 13 Findings 14 Population Growth and Aging Account for Less Than 2% of Growth in Public-Sector Health Spending Average Annual Growth Rate, 1998 to 2008 8% 7.4 7% 6% 2.8 Aging 5% 4% 3% Other 0.8 Pop. Growth 1.0 General Inflation 2% 1% 2.8 0% 15 Inflation Rates Differ Slightly Depending on the Price Index Used 140 1997 = 100 135 Index 130 125 120 115 110 105 GDP Deflator Total Health Care (NHEX) Gov’t Current Exp. CPI—Health 100 95 16 Hourly Wage in the Health Sector Relatively Higher Than in the General Economy $25 $20 $15 $10 $5 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 General Economy Health and Social Assistance 17 P/T Government Health Care Spending Highest on Seniors . . . 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1998 Health Care Spending Distribution 2008 Health Care Spending Distribution 1998 Age Distribution 2008 Age Distribution 18 . . . But Impact of Population Aging Minimal Over Time 10% 8% 6% 4% 2% 0% 1998 Health Care Spending Distribution 2008 Health Care Spending Distribution 1998 Age Distribution 2008 Age Distribution 19 The Impact of Aging Does Not Vary by Year 10% 8% 6% Other Aging 4% Pop. Growth 2% General Inflation 0% 20 Average Growth Rates per Capita for Older Seniors Are Among the Lowest 8% Average Annual Growth in P/T Government Health Spending by Age Group, 1998 to 2008 6% 4% 2% 0% Spending per Capita by Age Group Spending per Capita—Average for All Age Groups 21 Population Growth and Aging: Two Demand-Side Factors With Wide Variation Across Jurisdictions Average Annual Growth 3% 1998 to 2008 2% 1% 0% -1% Population Growth Aging 22 Technology: A Likely Important Supply-Side Factor Responsible for Health Care Spending Growth • Technological improvement is one of the factors responsible for increases in health spending • The size of its effect is difficult to quantify, but three general approaches are often used: – The residual approach (what is left after the quantifiable factors are accounted for) – The proxy approach (use of an alternative indicator) – Case studies (cost–benefit analysis, including changes in outcomes) 23 Technology in Health Care • Medical technologies may include – Robotic devices that facilitate delicate surgical procedures – Computers that help clinicians in decision-making – Medical devices (including imaging equipment) – Pharmaceuticals – Electronic health records and electronic medical records • Technological change consists of – Innovation: • New products and techniques – Utilization: • Changes in clinical practices and demand due to pharmaceuticals and non-pharmaceutical products 24 Technology Could Be One of the Most Important Components of the Other Factors • Of the 7.4% average growth in health spending from 1998 to 2008, 2.8% may be attributable to other factors such as – Technology – Health-sector price inflation—no ideal measure, but some measures suggest that it is somewhat higher than economy-wide inflation – Level of morbidity, lifestyle changes—no evidence of an increasing impact on health spending growth. To the contrary, some even suggest a declining impact (OECD, 2006) – Fiscal position—allowing governments to implement new or enhanced programs. 25 Stable Trends in the Shares of Total and Program Expenditures Over the Last Few Years Total P/T Government Health Expenditure as a Proportion of Total Program Spending 40% 30% 20% 10% 0% Health as a Proportion of Provincial Programs (Total Expenditure Less Debt Charges) 26 Public-Sector Health Spending Growing Faster Than Revenues; Still Some Increases in Other Government Programs Average Annual Real per Capita Expenditure Growth, 1998 to 2008 3.4 4% 2% 2.0 1.4 1.5 0.6 0% -2% -4% -6% -5.6 -8% Revenue Debt Charges Health Trans./Comm. Education Social Services 27 Biggest Share of Public-Sector Health Care Funding Still Goes to Hospitals, Stable Since Early 2000 50% 40% Share of Public-Sector Health Expenditure by Use of Funds, Selected Categories, 1990, 2000 and 2010 47.6 38.2 37.3 30% 20.1 20% 18.8 19.2 11.8 10% 7.6 5.0 9.2 9.0 9.9 2.2 1.7 1.1 0% Hospitals Drugs 1990 Physicians 2000 Other Institutions Other Professionals 2010f 28 Growth in Total Health and Drug Spending in 2010 Lowest in Last 10 Years Annual Growth in Selected Categories, 2010 Versus AAG for Previous 10 Years 10% 9.9 7.9 8% 4.8 8.0 7.6 6.9 6.7 6.4 6% 7.7 6.1 6.2 5.2 5.6 6.9 7.1 6.1 4.7 5.1 4% 2% 0% Drugs Total Health Spending Hospitals Average (1999–2004) Other Professionals Physicians Average (2004–2009) Other Institutions 2010f 29 Key Findings • F/P/T fiscal positions—deficits/future constraint • Inflation—health-sector concerns • Impact of technology—increasing • Categories of spending—physicians taking a larger share of the total in recent years 30 Future Issues to Keep an Eye On • Growth in health care spending similar to the rate of GDP growth • Population aging having a modest impact on health expenditures • Fewer savings from debt service charges and government deficits having a moderating influence on the growth of health care spending • Growth in physician spending 31 Questions? Thank You 33