The distribution of healthcare spending: an international comparison

A special issue of Fiscal Studies published today looks at patterns of individual-level health spending across a range of countries and finds some important similarities. It shows how health spending is concentrated in the last years of life, how significantly more is spent on the poor than on the rich and how health spending tends to be concentrated on a relatively small number of people with high needs.

The countries considered – Canada (Quebec), Denmark, England, France, Germany, Japan, the Netherlands, Taiwan and the United States – have health care systems that differ in important ways, such as the role of government in the funding and provision of care and the extent to which patients face direct costs for treatment they receive. However, all have experienced rising health care costs as a share of national income over the past few decades and face the pressures from ageing populations and new effective but expensive treatments.

National accounts data from 2012 show that the US, which operates a market-based system, spends a much higher share of national income on health care (16%) than European countries and Japan (where shares are typically between 8% and 11%). Much less is known about the extent to which these health care systems also lead to differences in how health care spending is distributed across the population. The papers published today use individual-level data on health care use and costs from national health care systems and private insurers to provide new evidence on the similarities and differences in patterns of medical spending across countries. The work focuses on three main aspects of spending, important for designing health care policy and understanding the principal drivers of rising demands on health care budgets: the relative cost of end-of-life care, where the high costs associated with dying have been a focus of academic and policy interest; the distribution of health care spending by income; and the share of health care spending accounted for by the most expensive patients.

Comparing the patterns of spending across all the countries provided five main findings:

• First, the care of those in the last year of life is costly, but represents a relatively modest fraction of total health care spending. In all of our countries, those who die account for less than 1% of the population each year, but at least 4% of total medical spending. In England, where information is restricted to hospital care, £1 in every £10 spent on hospital care is spent in the last year of life. Among the population aged 65 and over, £2 in every £10 is spent in the last year of life. These figures for England are towards the top of the range found for other countries on similar measures of spending. For all the countries we study, these costs are sizable, but do not appear large enough to be the key driver of differences in medical spending either over time or across countries. To place these figures in context, while total spending on the NHS in England doubled in real terms during the 2000s, reducing spending on end-of-life care by half would reduce total spending on hospital care by 5%.

• Second, we present new evidence on the income gradient of medical spending. Total medical spending typically decreases with income in any given year, with poorer people consuming more medical resources than richer people, both for the population as a whole and within any given age groups. In England, those living in the poorest fifth of local areas have hospital costs that are 14% higher than the richest fifth, for the population as a whole. Those aged 65 and over in the poorest areas have 35% more spent on them than those in the same age group in the richest fifth of local areas. In Denmark, where information on income is available at the individual level, average medical expenditure for the poorest fifth of the population is around two–and–a-half times that of the richest fifth.

We do not attempt to adjust for medical needs, and therefore make no claims about whether or not the distribution of medical spending is fair. However, in England, Denmark and elsewhere, health expenditures are financed through progressive taxation. The patterns of spending by income therefore indicate that such health care systems typically act to redistribute resources from rich to poor. Furthermore, we show that in countries that use patient cost-sharing (where patients must pay directly for a certain share of the cost of medical care), such as the US and Taiwan, the share of spending accounted for by the poorest in society is lowest. Thus, while patient cost-sharing may help control spending on medical care goods and services, it also means that more of those goods and services will flow to richer patients who can better afford them. Countries that ration health care using non-price mechanisms, such as the guidelines of the National Institute for Health and Care Excellence in England and Wales, have greater health care use by low-income people relative to those with high incomes.

• Third, health care spending in any given year is highly concentrated in all countries. For hospital spending, a tenth of the population in England account for £8 in every £10 spent on hospital care. Similar levels of concentration are found in all other countries. For countries that have more information on broader measures of health care costs, which include services such as primary care and prescriptions, concentrations are a little lower at between a half and two-thirds of spending accounted for by a tenth of the population.

• Fourth, the US is a clear outlier in terms of total medical spending as a share of national income and average total spending per person, but looks much more similar to other countries in terms of how that spending is concentrated. Although the levels are higher in the US, health care spending is somewhat less concentrated in the US than in most countries, in terms of both the share accounted for by the top medical spenders and the share going to those in the last year of life. This picture is consistent with much higher health care spending in the US generated by higher prices or greater use of medical goods and services for the average patient, rather than with very high levels of expensive care received by a small number of people at the end of their lives.

• Finally, the data available on medical spending in England are far less comprehensive than those for comparable countries in Europe, despite operating a national public health system. Information is restricted to hospital use, which constitutes less than half of NHS spending. The scrapping of the care.data programme, which sought to bring together information from different health and social care settings, means that unfortunately this situation is unlikely to change in the near future. Moreover, maximising the use of hospital data that are available in England is hampered by restrictions on access and delays in linking to survey data, even when there is consent from individuals to do so. This places limitations on the extent to which patterns of individual-level spending and the links between costs and service provision in different parts of the health and social care system can be fully understood. The fact that data coverage and access are far more restricted in England than in many other countries reduces the amount of research carried out on the efficacy of health care delivery across the NHS, thereby making it harder to uncover possibilities for service improvement. Ultimately, patients may pay the price for this.

Percentage of total medical spending on those in the last calendar year of life as a share of aggregate spending