This presentation by Joseph White, United States, was made at the 35th Meeting of Senior Budget Officials held in Berlin on 12-13 June 2014. Find more information at http://www.oecd.org/gov/budgeting/35thannualmeetingofoecdseniorbudgetofficialssboberlingermany12-13june2014.htm

1. THE CHALLENGE OF BUDGETING
for HEALTH CARE PROGRAMS
Joseph White, Ph.D.
Luxenberg Family Professor of Public Policy
Case Western Reserve University
Prepared for 35th Annual Meeting of
OECD Senior Budget Officials
Berlin, 12-13 June, 2014

2. Observations on Four Topics
Demand Pressures for Health Care
Spending
In What Ways Could It Be
“Unsustainable?”
Pursuing Efficiency
Variations and Effects of the
Structures of Governance, Finance,
and Delivery

3. A Major Budgetary Challenge
Only pensions compare in size
Intense public demand:
The only basic human need with
socialized spending
Demand is not for health, but rescue:
From death, pain, fear
Expanding demand: “need” for care
keeps growing

4. Why Scope of Demand Expands
Claimants always promote programs –
But Provider-Induced Demand at Many
Levels:
When go to the doctor
Publicity for new “miracle” drugs, services
Medicalizing social and individual problems
Equity and Equality:
Not a typical consumption good, so
if some get a service, hard to refuse to any

5. Two Overstated Explanations:
Population aging a modest factor
The “red herring” from cost of dying
Compression of morbidity
Not an automatic result of “technology”
Many expansions are not “high-tech”
Price and availability are policy choices
But can make services more attractive
CAN improve efficiency –
But who captures efficiencies???

6. Lets not exaggerate the economics
Effects Through Deficits:
Second-order: depend on rest of budget
Normal deficit effects are weak
Does make cautious fiscal policy more difficult
Dedicated revenues possible and common
Direct Effects on Employment
Payroll contribution systems
But health care spending is jobs too
May increase employment – though trade
balance a concern

7. Unsustainable Redistribution?
Average cost of care now unaffordable
for large parts of any population
Need to redistribute grows with:
higher spending, rising income inequality
Dedicated revenues based on wages
become inadequate
Can governments collect the money?
Note: revenue need not be “progressive”
Systems redistribute to providers too!

8. Which Efficiency to Target?
Ratio of Inputs to-
Outputs: Program or “Internal” efficiency
Traditional budget analysis (how many beds do
we need to treat likely volume? Is there a
cheaper way to provide the same services?)
Outcomes: Comparative efficiency or
“prioritisation.”
“Budgeting for performance.” Should the mix
of services be changed?
Outcomes MUCH harder than Outputs

9. Efficiency and the “Experts”
Strong Opinions, Weak Evidence
Is the outcome rescue or health?
Public Health perspective
Volume or Price?
Economists and “Excess Demand”
Alphabet Soup of Delivery Reform:
P4P, ACO, EBM, EMR, CEA
Centralize! Decentralize! Integrate!
Regulate! Create Competition!

10. Is There a Best Structure?
Beveridge vs. Bismarck
Germany vs. U.K.
Signs of Convergence
Three forms of finance and governance
Social Security Systems
Central Government
Local/Regional Government
Many ways to mix authority and funding

11. Two Budget System Choices
General or Dedicated Revenues
Dedicated revenues easier to raise (?)
Represent public preferences (?)
May restrain or enable spending
Bureaus vs. Entitlements –
Dynamics of Blame and Control
Entitlements force explicit cuts (bad)
Bureaus allow blaming managers – but then
government is responsible for quality
More ways to control bureau programs

12. Budgeting Practices for Health
2013 Survey of Budget Officials
Who is the partner/rival?
Health ministries? Social Insurers? Subnational
Governments?
Structures influence process, if not results.
Wide variations in CBA role:
Review of details, allocation of revenues, ceilings
vs. targets (but why not just appropriations?)
CBA concern about information asymmetry
(But are the partners much better informed?)

13. Sub-national governments
2013 Survey of Budget Officials
Decentralising to offload tasks
But not resources – and may not avoid blame
Size concerns – consolidations
Transfers vs. SNG funds
Large variations in revenue capacity
Mostly block transfers – but some strings
Blame games, political battles
Policy results unclear:
Sweden vs. Norway!

14. Some Suggestions…
Dedicated Revenues Plus Bureau Form
But have to solve the payroll problem
Address the boundaries of health care
Remember both redistributions
Richer to poorer, everyone else to providers
Be skeptical! Don’t trust “experts”!
Many make careers promoting “answers”
Remember whom the budget serves
“Agility” should not trump public preferences

15. Thank you for listening!
We should have lots to discuss
And thank you again to all the staff
involved with the Joint Network.