Public expenditure projections for health and long-term care
Over 80% of health spending in the EU is financed out of public sources, such that the size and growth in health and long-term care expenditure raises questions about a country’s ongoing budgetary position, as noted in Chapter 5 (see indicator “Financing of health expenditure”). Ageing populations will continue to exert pressures on health and long-term care spending while reducing the size of the working-age population able to finance such expenditure, raising concerns around the fiscal sustainability of health and long-term care systems. Another important driver of health and long-term care spending is technological progress. The type of technological development and how it is implemented may put upward or downward pressures on expenditure.
Long-term budgetary projections are useful in that they allow policy makers to consider the trajectory of public expenditure under various scenarios. They also reveal the role of the main underlying drivers underpinning the development of health and long-term care costs.
Projections of public expenditure on both health and long-term care are regularly carried out by the Ageing Working Group of the Economic Policy Committee (AWG), using the European Commission services’ models (European Commission (DG ECFIN), 2021[13]). In both health and long-term care projection models, the range of scenarios test the potential impact of different determinants of public spending (including both demographic and non-demographic factors) to project how each may contribute to the evolution of public spending over the next 50 years.
The results presented here are based on the 2021 AWG reference (or baseline) scenario, which is used when calculating the overall budgetary impact of population ageing. Among the main assumptions is that half of the future gains in life expectancy are spent in good health and an income elasticity of health care spending is converging linearly from 1.1 in 2019 to unity in 2070.
Based on this scenario, the 2021 projections exercise results in an increase of public spending on health of almost 1 percentage point (0.9) of GDP in total for the 27 EU countries by 2070 (Figure 8.13). At the lower end of the projections, public expenditure on health is forecast to rise by only 0.2 of GDP in Bulgaria and 0.3 in Cyprus, while it is projected to increase by more than 2 ½ percentage points of GDP in the Slovak Republic, Poland and Malta.
Long-term care expenditure represents a steadily increasing share of GDP in many EU countries and, as such, it is important to the long-term sustainability of public finances. Under the same AWG reference scenario, the main result is a projected increase in public spending on long-term care across the 27 EU countries of more than 1 percentage point, from 1.7% of GDP in 2019 to 2.8% of GDP in 2070 (Figure 8.14). The results vary widely across countries, from basically no change in Greece, a 0.2 percentage point rise in Latvia and Bulgaria, more than 2 percentage points of GDP in the Slovak Republic, Finland, Belgium and Sweden, and as much as 2.7 and 3.4 percentage point increases in the Netherlands and Denmark respectively (European Commission (DG ECFIN), 2021[1]).
The data, methodology and assumptions used for the health and long-term care expenditure projections are explained in detail in the 2021 report prepared by the European Commission (DG ECFIN) and the Economic Policy Committee (Ageing Working Group). The “AWG reference scenario” is used as the baseline scenario when calculating the overall budgetary impact of ageing. The EU averages are weighted according to GDP.
References
[1] European Commission (DG ECFIN) (2021), The 2021 Ageing Report: Economic and Budgetary Projections for the EU Member States (2019-2070), European Commission, http://data.europa.eu/doi/10.2765/84455.
