2nd CESEEC Health Systems Joint Network Meeting, Tallinn, 1 December 2016 “The financial sustainability of health systems – improving the dialogue” Spending on health: when is it worth it?

Stephen Wright, INTEGRATE

PowerPoint: can you be inoculated against death by sound-bite?…

…I’ll use PPT anyway, but try to avoid the oversimplification traps

Signposts

• Introduction (me, recessions & health) • The Great Recession • Health expenditure: time framing • Conclusions

This presentation This presentation is a trial balloon for a forthcoming paper for WHO: “How should health decision-makers (MoH) develop the dialogue with economic decision-makers (MoF) about maintaining or increasing resources for health?”

Keypoint: the Great Recession changes everything

My credentials: • An economist (though not macro…) • A 20-year career at the European Investment Bank, with a

decade running health analysis • Steering Committee of the WHO Observatory • Two think-tanks, one on health facilities & financing, & the

second on fostering social sector investment

An aside: what about the impact of recessions on health? • 1% rise in unemployment is

associated with mortality +0.8% suicide/homicide, & -1.4% traffic accidents

• No effect on all-cause population mortality

• Maybe a very-long lived recession will be different!

• Effects vary by country & social group, & across time

• Studies at individual-level usually show worse effects

• Unmet healthcare need rises?

Source: Stuckler et al, Lancet, 2009

Signposts

• Introduction (me, recessions & health) • The Great Recession • Health expenditure: time framing • Conclusions

Great: Depression vs Recession Monthly industrial production indices (June 1929 & June 2007 = 100) Source: Parejo & Sudrià, Revista de Historia Industrial, 2012)

On a world scale, this is less bad than the 1930s. But (forgetting the BRICs) the West isn’t doing well This is not a typical post-war business cycle

Maybe even a “Secular Stagnation”?

This is the idea that economic growth is low because: • Long-run productivity growth has stalled (demography,

education, inequality, debt…); or • Demand has tipped below long-term potential & is stuck

(very low interest rates); or • With an unemployment shock for whatever reason,

‘human capital depreciates off the job’, & unemployment ratchets up

Potential output growth Source: OECD, Oct 2016

Debt & the Great Recession • The volume of debt is classically regarded in

economics as net irrelevant – my debt is your credit • However, for the private sector (household, firms):

• Asset prices will have been driven up in a Ponzi cycle where - for some period - taking debt was rational

• The rise in the debt stock feeds into current demand • When the carousel stops turning, many players seek

simultaneously to “deleverage”, & the outflow from demand causes a crash (a “Minsky moment”)

• Inability to repay will be concentrated, & contagious • If government can step in to support economic

activity, OK – but its debt load then increases pari passu

Massive imbalances built up in the “Great Moderation” Unwinding this “balance sheet recession” is proving utterly laborious

It needs a significant effort to reduce stock of government debt back to previous levels

Source: Cecchetti BIS Feb 2010 from IMF World Economic Outlook & OECD Economic Outlook; own calculations

It is difficult for single countries to run surpluses, but they must be 2-5% of GDP, for a decade+, in many countries

Required average primary balances to stabilise public debt/GDP at 2007 level (% GDP)

Over 5 years Over 10 years Over 20 years Austria 5.1 3.0 2.0

France 7.3 4.3 2.8

Germany 5.5 3.5 2.4

Greece 5.4 2.8 1.5

Ireland 11.8 5.4 2.2

Italy 5.1 3.4 2.5

Japan 10.0 6.4 4.5

Netherlands 6.7 3.7 2.3

Portugal 5.7 3.1 1.8

Spain 6.1 2.9 1.3

UK 10.6 5.8 3.5

USA 8.1 4.3 2.4

And since 2008, private debt hasn’t decreased either

(OECD Fiscal Monitor, Oct 2016)

What about policy to manage the economy? Firstly, monetary policy Traditionally, central banks bought & sold financial instruments to move interest rates - but we are now at the “Zero Lower Bound”. So: • Quantitative Easing to reduce long-term interest rates –

but it worsens inequality, & now is pushing on a string • Extend this to “helicopter money”? • “Forward Guidance” – markets, do what you’re told to!

Is that it?!

Yardeni Research, Nov 2016

Secondly, fiscal policy

Source: IMF

Fiscal policy is useful, within a time framework (Factors influencing growth):

(Fiscal limit distribution function) Countries could, but aren’t, doing enough of it :

Source for both: OECD, Oct 2016

What conclusions should the health sector draw?

• The debt overhang is a drain on economic growth • Even if there is some “fiscal space” for many countries to

spend, they’re not doing so • The effectiveness of monetary policy has plateaued • Inherent productivity drivers in the economy have stalled

In sum, the prudent expectation from now for many years to come – perhaps the indefinite future – is of constrained economic growth & constrained public financial resources For the health sector to hold on by the finger-tips, in the hope of better times to come, is not a reasonable option

Signposts

• Introduction (me, recessions & health) • The Great Recession • Health expenditure: time framing • Conclusions

Government decision-making always occurs in a time-frame

“The past in a foreign country: they do things differently there”

The future is also a foreign country. We know the past we’ve come from, but we don’t know where the future country is, nor how to get there. Just as important, we need to know as well the language of Ministries of Finance – an important pilot on this journey Time is of course continuous, but arbitrarily we split it up: long-, medium-, & short-term

Long-term (8-30 yrs) dialogues between MoF & MoH

Perhaps surprisingly, having a dialogue with economic decision-makers about the long-term is in fact easy: • The Tallinn Charter (June 2008) & ‘health-is-wealth’ are

accepted as valid long-term aspirations & enablers

c.f. a recent Public Health Wales exercise I’ve been involved in, building on the “Wellbeing of Future Generations Act” in the country

• Such advocacies are based on the human capital idea, applied to health. But caution: announcing a ‘rate of return’ of 3900% for an intervention tells decision-makers they’re dim enough not to have noticed killer returns!

• Pushing up long-term resources for health needs a debate, & national compact (c.f. Wanless Report, UK)

Medium-term (4-8 yrs) dialogues between MoF & MoH

For this timescale, beyond the immediate concerns of the current economic cycle & the duration of an elected government, the script for a dialogue is a bit sparse! • Social cohesion? • Anything else???

This is an important time horizon, where the evidence hasn’t been developed in an appetising way for economic decision-makers

Short-term (1-3 yrs) dialogues between MoF & MoH

• As a good macroeconomist (JM Keynes) once said: “in the long-term we’re all dead”. Or for a finance minister, maybe, “please make me chaste, Lord, but not just yet”

• The health sector has historically relied on arguments about inequality to address short-term economic pressures – that misunderstands the problem

• One piece of work has been done on fiscal “multipliers”, indicating that health gives a better ‘bang for the buck’ than most sectors. This could be a route forward in advocacy:

Reeves et al, Globalization & Health, 2013

1. The Great Recession will stay around: a prudent expectation is restricted public expenditure for years

2. Recessions: an ambiguous impact on health status 3. Decision-making on use of national financial

resources always takes place in a time-frame: A. Long-term. Health sector has good arguments - health-

is-wealth/human capital (but need social compact) B. Medium-term. Health policy-makers’ evidence for the

sector as an agent of social cohesion? C. Short term. The health sector arguably is an efficient

tool for creating demand in the economy

My conclusions

A Tallinn Charter (Mark II) will need to be more multidimensional than the last. Most important, applying long-term Tallinn Charter ideas to the current short- (or maybe medium-)term economic problem misses the target