Toronto IHEA conference 2011 presentation.

1. The incentives of HCE-finance: do
institutions, structures and finance matter?
Original working paper in SSRN by Senior Researcher, Eero Siljander Sr.,
Center for Health and Social Care Economics, National Institute for Health and Welfare, FINLAND.
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-> The answer is: YES, they do. The question is
WHY? Because… there exist substantial inter-country and also intracountry differences in…
A) Financing systems (multi-channel or one-channel etc.).
B) Remuneration of GP’s and hospitals (capitation, DRG’s etc.).
C) Organizations of care and service delivery (access, eligibility).
D) Public and private sector’s roles in provision (shares, targeting).
(source: Gerdtham U.G., Jönsson B. Handbook of Health Economics, 2000)
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- If the financing arrengements play a part in determining HCE then we should expect
the system dummies to be both statistically significant and practically relevant which
is the case here.
- Thus there seems to be evidence for framework global budgeting and guiding
incentives for GP’s in controlling health care expenditures. Large share of copayments and insurance coverage may cause ”billing or DRG-drift” and ”cost-slack”
in care in insurance reimbursement and fee-for-service settings.
- The tax based systems do well in HCE expenditures comparison to other financing
forms (NHS-type systems of UK and Spain, Nordic local provision countries).
07/13/2010

2. Motivation: health care expenditure increase with the fast ageing population
and advances in medicine and technology in industrialized countries –
what role for the financing system in OECD ?
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In general there is no
sizeable correlation
between HCE and
system type.
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However…
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France
Belgium
Switzerland
Germany
Canada
Portugal
New Zealand
Netherlands
Denmark
Sweden
Italy
Iceland
Spain
United…
Ireland
Norway
Australia
Finland
Japan
Slovak…
Hungary
Czech Republic
Poland
Luxembourg
The figure depicts the
relationship between
health insurance and
tax financed systems.
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IF:
One excludes the
former eastern
european
transitional
countries with low
GDP levels
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Figure 1. Health expenditure in
OECD countries in 2007
THEN:
The taxed based
systems of HCE
financing are
smaller in costs.
Correlation
(TAX,HCE)=
R=0,05.
RED = Social security or
insurance fínancing
GREEN = Tax based
financing
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10
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1)Figure 1., source: OECD Health Data 2010, OECD. Western
Europe (EUR): the Netherlands, France and Spain. Nordic countries
(NORDIC): Norway, Sweden, Denmark (country group averages).
07/13/2010
Senior Researcher, Eero Siljander, Center for Health and Social Care
Economics, National Institute for Health and Welfare.

3. Figure 2. Correlation between global budgeting (GLO),
and fee-for-service (FFS) with displayed HCE expenditures in OECD countries, 2008.
USA
France
Belgium
Switzerland
Germany
Austria
Canada
Portugal
New Zealand
Netherlands
Greece
Denmark
Sweden
Italy
Iceland
Spain
United Kingdom
Ireland
Norway
Australia
Finland
Japan
Slovak Republic
Hungary
Czech Republic
Poland
Luxembourg
Korea
Turkey
Mexico
Red = FFSs and
no global
budgets
Green =Global budgets,
No FFSs.
Top bar=FFS
Bottom bar= GLOBAL
correlation (GLO, HCE)=,
R=(-0,17).
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07/13/2010
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7
8
9
10
11
12
correlation(FFS, HCE)=
R=+0,44.
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Senior Researcher, Eero Siljander, Center for Health and Social Care Economics, National Institute for
Health and Welfare.
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3

4. The growth and adjustment of HCE
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A. The growth in HCE expenditures is
rapid with a nearly linear trend.->Growth
has been nearly 50 percent in the
timespan of 30 years from 1975 to 2005
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B. The adjustment parameter varies in
the range 0,05-0,1 which refers to
sluggish adjustment. There is persistent
autocorrelation in the data which does
not however capture all of the variation
in HCE. The median lag length is
between 3 to 10 years.
-> The adjustment of HCE towards
target becomes slower towards the end
of the sample.
Figure 3. Health care expenditure in sample by A.GDP-share
change (right, pp.), B1. adjustment parameter and B2. public
finance share (left, percent)
adjustment parameter
change in GDP-share
public finance share
0.14
0.5
0.45
0.12
0.4
0.1
0.35
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0.3
0.08
0.25
0.06
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0.2
0.15
0.04
0.1
0.02
0.05
0
0
1975
07/13/2010
1980
1985
1990
1995
2000
2005
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C. The effect of public financing on total
HCE has declined over time from 5 % to
3,5 % according to figure 6. This may
point to the increased share of private
funding but also to more cost-effective
public use of finances.
->The impact of a +10 percent increase
in public financing has an +0,5 to + 1,0
percentage point effect on health care
expenditure on average.
Senior Researcher, Eero Siljander, Center for Health and Social Care
Economics, National Institute for Health and Welfare.

5. Explanatory factors contributing to
HCE growth in developed OECD.
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Figure 4. The elasticity of health care expenditure
by explanatory variable, (Y=HCE, percent
change, 10 percent X-change).
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4
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public
exogenous urbanization
doctors /
female
finance share technological
rate
inhabitants participation
change
-ratio
rate
-2
07/13/2010
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1)-> For fee-for-service (FFS)
in primary basic care: it is
statistically significant and 22
percent higher in costs of
other remunaration
arrengements.
2)-> For the hospital global
(GLO) budgeting: it is
statistically significant and 34
percent lower in cost terms
compared to the reference of
other hospital financing
arrengements.
The increase in the urbanization rate
by 10 percent increases expenditures
by 8 percent (access to services),
The
growth
in
public
HCE
expenditures by 10 percent increases
total expenditures by 4 percent,
Exogenous technological change
increase HCE expenditures by 2
percent,
The same result of 2 percent holds for
the one percent increase of practising
physicians per capita.
Senior Researcher, Eero Siljander, Center for
Economics, National Institute for Health and Welfare.
Health
and
Social
Care