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Open Access 01-12-2018 | Research article

Fiscal rules, powerful levers for controlling the health budget? Evidence from 32 OECD countries

Authors: Herman Christiaan Schakel, Erilia Hao Wu, Patrick Jeurissen

Published in: BMC Public Health | Issue 1/2018

Abstract

Background

Publicly funded healthcare forms an intricate part of government spending in most Organisation for Economic Co-operation and Development (OECD) countries, because of its reliance on entitlements and dedicated revenue streams. The impact of budgetary rules and procedures on publicly funded health care might thus be different from other spending categories. In this study we focus on the potential of fiscal rules to contain these costs and their design features.

Methods

We assess the relationship between fiscal rules and the level of public health care expenditure of 32 (OECD) countries between 1985 and 2014. Our dataset consists of health care expenditure data of the OECD and data on fiscal rules of the International Monetary Fund (IMF) for that same period. Through a multivariate regression analysis, we estimate the association between fiscal rules and its subcategories and inflation adjusted public health care expenditure. We control for population, Gross Domestic Product (GDP), debt and whether countries received an IMF bailout for the specific period. In all our regressions we include country and year fixed effects.

Results

The presence of a fiscal rule on average is associated with a 3 % reduction of public health care expenditure. Supranational balanced budget rules are associated with some 8 % lower expenditure. Health service provision-oriented countries with more passive purchasing structures seem less capable of containing costs through fiscal rules. Fiscal rules demonstrate lagged effectiveness; the potential for expenditure reduction increases after one and two years of fiscal rule implementation. Finally, we find evidence that fiscal frameworks that incorporate multi-year expenditure ceilings show additional potential for cost control.

Conclusions

Our study shows that there seems a clear relationship between the potential of fiscal rules and budgeting health expenses. Using fiscal rules to contain the level of health care expenditure can thus be a necessary precondition for successful strategies for cost control.

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ERs set limits on total, primary, or current spending; RRs set ceilings or floors on revenues and are aimed at boosting revenue collection and/or preventing an excessive tax burden; DRs set an explicit limit or target for public debt in percent of GDP; BBRs constrain the variable that primarily influences the debt ratio and are largely under the control of policy makers. (source: Budina et al. [5]).

In the ‘corrective arm’ of the SGP, the Excessive Deficit Procedure (EDP) ensures the correction of excessive budget deficits or excessive public debt levels. It is a step-by-step approach for reining in excessive deficits and reducing excessive debts. The EU Treaty defines an excessive budget deficit as one greater than 3% of GDP. Public debt is considered excessive under the Treaty if it exceeds 60% of GDP without diminishing at an adequate rate (defined as a decrease of the excess debt by 5% per year on average over three years) (source: ec.europa.eu)

Government healthcare expenditure, GDP, debt and population are expressed in natural log so that we are able to interpret the results in percentage change. Expenditure, GDP and debt are also measured in international dollars (i.e. purchasing power parity) so that we are able to compare different countries across time.

It should be noted that the analysis of Wendt only includes fifteen European countries and that some countries are characterized as social insurance systems (such as the Netherlands), but do not fit Wendt’s typology.

A delay in reporting of 6 months up to two years is not uncommon throughout the OECD (see for an overview of reporting delays per country OECD 2015, 92).

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Title: Fiscal rules, powerful levers for controlling the health budget? Evidence from 32 OECD countries
Authors: Herman Christiaan Schakel
Erilia Hao Wu
Patrick Jeurissen
Publication date: 01-12-2018
Publisher: BioMed Central
Published in: BMC Public Health / Issue 1/2018
Electronic ISSN: 1471-2458
DOI: https://doi.org/10.1186/s12889-018-5198-y

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Fiscal rules, powerful levers for controlling the health budget? Evidence from 32 OECD countries

Abstract

Background

Methods

Results

Conclusions

Keynote webinar | Spotlight on medication adherence

Springer Medicine

Abstract

Background

Methods

Results

Conclusions

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