Today’s Managing Health Care Costs Number is -7.2%
Health Spending as % of GDP
I’ve long thought that to get health care costs to genuinely decrease – we’d have to see economic catastrophe. It’s happened before, Health care costs went down in Argentina after its default, and in Russia after the dissolution of the USSR. This decrease in health care cost in these instances was not a cause for celebration. Rather, it was a clear indication of societal crisis – and in Russia was associated with a dramatic decline in life expectancy.
The Organization for Economic Cooperation and Development (OECD) reports on health care expenditures in participating countries annually – and this graph comes from the 2015 report. It shows that health care costs went down (!) in six countries from 2009-2013.
What countries? Five of the six are countries that were in profound financial crisis – and each had a GDP in 2013 that was lower in 2013 than it had been in 2005. These countries are Greece, Portugal, Spain, Italy and Ireland. The World Bank graph below shows how the economic growth (or shrinkage) of these countries compares to the overall world GDP changes.
Why does health care cost go down when economic calamity strikes?
People cannot afford the basics (food, housing, clothing.) They initially put off cosmetic care or elective care. Eventuallly, they put off even necessary, high value care. Even in countries like Greece and Italy, 1/5 to 1/4 of health care costs are borne by private expenditure. And the governments in countries in economic collapse themselves cannot afford to pay for health care. They don’t always ration care –but they can lower the prices they pay for the care they provide –whether it’s by neglecting maintenance on government-owned hospitals or decreasing salary or benefits for government-employed health care workers.
The graphic above shows that health care spending declined as a portion of GDP - and the shrinkage in real health care spending is even more pronounced since in five of these six countries the GDP itself was shrinking.
The exception is Luxembourg, an ultrarich European country smaller in size than Boston. I can’t figure this out – but I’m open to suggestions. Perhaps Luxembourg has figured out a way to lower health care costs even while the (banking-dependent) economy was doing no worse than the rest of the world. Or perhaps their costs were already excessively high compared to neighboring countries, and this was merely regression to the mean. Or maybe it’s just such a small country that we can’t draw any conclusions from this.
We’ll all need to keep thinking of ways to stem health care cost increases, but the experience of the Euro-zone countries with the worst economic malaise suggest this is one way of lowering health care costs that we don’t want to emulate.
GDP Change
GDP PPP Per Capita
