Health care and austerity policies about Antoine Math paper "la Santé au péril de l'austéri

In a recent paper published in the Institute of Economic and Social Research review Antoine Math shows how austerity policies in the health care sector are socially disastrous and economically inefficient. Health care spending formed an important part of public expenditure in developed countries. Although health is often presented as essential for the future, even considered as a necessary human investment in a global competitiveness context, this sector has not been spared by the restrictive budgetary and fiscal policies.

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The new era we underwent started from the so-called sovereign debt crisis in 2010, period following the recession in 2008-2009, a moment characterized by restrictive budgetary policy, the scope and timing are variable between countries, but any of them derogate from having cut health care expenditures.

The issue of austerity and budget restrictions policies impacts conducted in recent years on public services, including health, logically arises more for the most affected countries, starting with the countries of the euro zone subject to the Troika requirements (the European commission, the European Central Bank and the International National fund.

The deciding factors which can explain the evolution of health expenditures are not fully consensual among searchers. Contrary to what is usually thought, this is not ageing population which mainly explains the evolution of health expenditures. Brigitte Dormont shows that expanding share of ageing people among the whole population and the increasing in the life expectancy slightly explain the increasing share of health expenditure in the GDP.

Between 1995 – 2009, on an average annual growth rate of 4,3% health expenditures among OECD countries only 0,5% can be related to ageing population. This comes from the rise of healthy life expectancy and the fact that health expenditure is really concentrated when people are nearing death.

Others pleaded that the institutional framework and the level of social coverage are the determining factors. Some comparative work highlights the key role played by institutions. National health care system such as United Kingdom, Ireland, Nordic countries and south European countries tend to easily reduce health-care provision in term of price and volume compared to the system based on a public health insurance (France, Germany, Netherlands, Belgium etc.). This result acknowledges the prior needs to control the health provision rather than demand to seek the reduction of health care expenditure. However this distinction does not clarify the evolution of public health expenditures which have been occurred in developed countries since the last two decade.

In reality, the decisive factor remains “technological improvement”. Technological progress include a large range of aspects directly linked to health care such as changing in medical practices and diagnosis, care, treatment of different diseases and the payment they involve.

According to some studies, Innovation would be responsible of almost three-quarters of the health care expenditure raise. Even though provision remain the deciding factor, demands is also important. Indeed, rising living standards in developed economy tend to go hand in hand with an increasing in health consumption. Besides, if expenses for care proportionally increase to income, they do not decline in case of economic downturn. Indeed, experience has shown that health expenditures tend to remain at the same level and even increase when the economy is slowing down. This is almost logical that health care expenditures are growing independently from economic downturn since the demand for health is quite different than most other goods. In other words, people do not choose to be sick.

Public health expenditures act as an economic stabilizer during economic downturn therefore they tend to remain at the same level in the early moment of the crisis. From 2007 to 2009, health expenditure per capita had slightly increased or remained stable for most European countries. Even though the level of spending felt slightly for Greece, Sweden and Netherland but this is due to the dramatic growth they used to have in the preceding times.

Three-quarters of health spending continues to come from public sources across OECD countries, but cost-containment measures in some countries have led to an increase in the private share - either through private health insurance or direct payments by households.

Nevertheless if we take a look to the following period (2010-2014) we notice that public health expenditure went down among OECD countries particularly in the Eurozone. We can distinguish two groups: countries where cuts-cutting have been dramatically severe and those where health spending per capita has been less drastic. In other words, countries placed under scrutiny of the Troika or in severe economic trouble and the others who faced economic slowdown with a limited budget.

On a hand, cuts were particularly high in Greece, Latvia, Portugal and Romania. In the other hand, french government opted for decelerating public health expenditure instead of operating some drastic cuts thanks to the National Objective of Healthcare expenditures (ONDAM).

Recently the government planned 11 euro billion reduction in public healthcare expenditure between 2015 and 2017, aimed to contain the expected yearly increase in public health expenditure to 2 % during that period. For 2015, the measures include a further cut in pharmaceutical prices and support for the use of generic medicines, efforts to eliminate prescriptions and treatments that are considered medically unnecessary and further optimization of hospital spending. French government was reluctant to implement drastic cuts due to the specific rule of social protection in the national economy. When we look at the French growth process, it's largely dependent on government expenditures, so if there is a strong decrease in public expenditures, it would be a risk for growth in France

This leads to the following consideration, social spending is decreasing across Europe, even though it could curb the negative impacts of the economic crisis.

Despite everyone agreed with the fact that investment in Health care has long-term positive effects on productivity, in times of economic slowdown this argument tends to vanish. In the name of imperatives cuts in public spending and, on behalf of the effectiveness of economic policies, governments reject the idea of ​​investing in health and education. These key sectors are sentenced to the “waiting for better days” modus operandi.

This approach is based on the wrong premise that social protection expenditure has a poor multiplier effect on national economy. Some economists have shown that the multiplier effect of social protection expenditure is stronger than the IMF and the European Commission pretend it to be in the early moment of the sovereign debt crisis. One may recognize that they recently switched their stance. Social protection spending has a really strong impact on economic growth. Aaron Reeves*, Sanjay Basu and Martin McKee recalculated the multiplier for different sectors economy and confirmed this intuition. Public Spending more "productive" are the social protection expenditure (excluding health), health and education, with multipliers respectively approximated 2.8, 4.3 and 8.4. They lead to the important conclusion that crises and recessions are not directly responsible of the health care systems degradation. In reality it is the political decision governments take to address economic downturn who undermine social sector. The scope and the impact of those political decisions are variable, depending on whether public accounts will be restored quickly and brutally.

The choice of reducing health care expenditure, particularly its public component is questionable since this option is ineffective looking at the economic purpose of reducing budget deficit. The return to a balanced budget cannot be found in cutting health care or educational spending since these expenses are those with the highest multiplier effects. In a reduction of public expenditure design to avoid plunging the economy into a deeper recession, it would be better to focus on areas where multipliers effects are the weakest such as defense and the financial sector (banks, businesses).

For more details:

MATH,Antoine (2014). « La santé au péril de l’austérité », Chronique internationale de l’IRES, no 148, (décembre).

REEVES, Aaron, et autres (2013). « Does investment in the health sector promote or inhibit economic growth ? », Globalization and Health

BASU, Sanjay, et David STUCKLER (2014). « Quand l’austérité tue », Le Monde diplomatique, monde-diplomatique.fr/2014/10/BASU/50879.