Policy Highlights
- Analysis of the latest trends in health spending find that after the extraordinary increases in 2020 and 2021, real health spending in 2022 dropped by 1.5% on average across OECD countries. Although premature to conclude on a new spending trajectory, budget information from a selected number of countries suggest that nominal health spending may return to pre pandemic growth rates. But with average inflation expected to remain above 5% in 2024 compared with less than 2% in 2019, this will continue to significantly reduce any nominal increases.
- Over the long-term, growth in health spending from public sources is projected to be twice the average growth in government revenues (2.6% and 1.3% respectively), on average across OECD countries between 2019 40. Consequently, health spending from public sources is projected to reach 20.6% of government revenues across OECD countries by 2040, an increase of 4.7 percentage points from 2018.
- In this challenging context, good budgeting practices are critical. They improve how public funds for health are determined, executed and evaluated. This not only increases the efficiency of current public spending, but also enables more ambitious policy changes in the medium to longer-term.
- Clear rules, monitoring and review mechanisms should be agreed upon across the annual budget cycle. This includes separating the cost of new health policy initiatives from baseline costs of maintaining existing services and coverage; the use of explicit criteria to facilitate budget negotiation; ensuring regular in-year budget monitoring, with corrective mechanisms to improve compliance; and using spending reviews to analyse health expenditures and ensure they are aligned with government priorities.
- In addition, medium-term budgeting for health enables countries to move to a more proactive forward-looking strategy that goes beyond the regular annual budget cycle. OECD countries have taken steps to build a medium-term perspective into the budget process for health, with about 90% of surveyed country governments estimating health spending for future years. However, the link with the annual budget process is often lacking, only just under half of surveyed OECD countries use medium-term spending estimates for health as the basis for future budget allocations.
- Finally, in recent decades, there has been a trend in OECD countries towards classifying budgets for health around programmes. This type of budget classification groups expenditures with related policy objectives and outcome targets. Common objectives are programmes on improving health promotion, digital health, medical education; and when the scope of programme budgeting is greater, can include broad health service type (such as primary care, hospital services and long-term care). The move towards programme budgeting forms part of the interest of governments to ensure budgets are more performance oriented. The most common approach – in over two thirds of analysed countries – is to include performance metrics for health within budget documents, but with no direct link between funding and results.
The challenge of raising sufficient funds for health in the current economic context
In the two decades leading up to the COVID-19 pandemic, spending on health across OECD countries increased steadily, on average, from around 7% of GDP in 2000 to almost 9% by 2019. Over time, the increase in the share of the economy allocated to health has been driven by a combination of rising incomes, technological innovation and ageing populations. Without a major policy shift, the OECD projects a continuation of this trend, with an increase of 2.4 percentage points to the health-to-GDP ratio as compared to pre-pandemic levels, and total health expenditure reaching 11.2% in 2040.
In addition, the pandemic highlighted the need for smart spending to strengthen health system resilience and to provide countries with the agility to respond to shocks, notably to protect underlying population health; fortify the foundations of health systems through a digital transformation and investment in core medical equipment; and bolster health workers on the frontline through measures to train and retain health workers.
Urgent action is therefore needed to finance more resilient health systems while ensuring the fiscal sustainability of health systems. This publication provides an in-depth analysis of the policy options available to meet the growing price tag of sustainable and resilient health systems, and the central role of effective budgeting practices for health in optimising the effectiveness and efficiency of public spending on health.
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