Federations and Health Care Spending

In putting together my material for my fiscal federalism course next term, I decided to take a look at some health spending figures for the OECD countries in order to compare federal with non-federal countries.  Federal structures generally try to combine the economic advantages of a more centralized state with some of the welfare and political benefits of a more decentralized structure.  Essentially, there is an amalgam of two or more jurisdiction such that the jurisdictions retain a degree of local or regional economic power.  How might this affect health spending?

Banting and Corbett (2002: 5) find that the presence of federal institutions influences the balance between public and private sectors in the provision of health care – namely, that: “federalism and decentralization create several types of barriers that constrain an expansive and redistributive welfare state: by increasing the number of veto points at which action can be delayed, diluted, or defeated; by creating separate regional jurisdictions, federalism generates interregional economic competition as state/provincial governments compete for private capital, which can exit for other regions with more hospitable fiscal regimes.”

Banting and Corbett using data for the 1960 to 1998 period found that federations (Australia, Belgium, Canada, Germany and the United States) had higher total health spending than non-federal states and that public spending represented a smaller percentage of total health spending.  Federal states also appeared to be less successful in the area of fiscal restraint as they added an additional layer of complexity to cost containment.

So I decided to try a quick update of some of the differences across federal and non-federal members of the OECD with respect to health spending using the OECD Health Statistics 2014.  Of the 34 OECD countries, nine can be classified as federations (Australia, Austria, Belgium, Canada, Germany, Mexico, Spain, Switzerland and the United States).  I took this classification from the list provided by the Forum of the Federations site.  Naturally, one can debate whether this list can be expanded or shrunk.  Austria for example is a federal republic but has become quite centralized.  England and Italy are not federations but have been moving towards more regional structures.

When it comes to health spending, there is also the issue of what to do with the United States given that its health expenditure to GDP ratio and per capita health spending is quite exceptional compared to every other country – federal or non-federal.  I have decided to construct averages that both exclude and include it. 

So, here are some comparisons.  Figure 1 plots the average total health expenditure to GDP ratio for federal and non-federal OECD countries in 2012. Figure 2 plots per capita total health expenditure in 2012 for federal and non-federal OECD countries.  As well, Figure 3 plots the public sector share of total health spending and Figure 4 compares the average annual growth rate for real total health expenditures for the 2000 to 2012 period.

 

The results seem to support many of the conclusions reached by Banting and Corbett over a decade ago.  Federations do seem to spend more on health expenditures both in per capita terms as well as a share of GDP.  As well, the public expenditure share of total health spending is larger in non-federations relative to federations in the OECD.  Where there is one difference is that the average annual growth rate of spending has actually been more restrained in federations relative to non-federations.  In the OECD, federations spend more than non-federations on health but the growth rate for federations has been more restrained as of late.

Of course, the other point worth noting is that the average per capita GDP of these federations is higher than the non-federations.  I would suggest that federations spend more on health than non-federations because they are wealthier (whether federalism has anything to do with that is another interesting question) but the decentralizing and competitive aspects of federalism may have probably kept the public sector share of health spending lower and also have served to reduce the growth rate of health spending over the last decade. Interesting stuff.

Well, that about wraps this up.  As I continue revising my fiscal federalism course, I will have to see what else I come across in the New Year. 

All the best for the holidays. For your entertainment, I have attached a photo of the Lakehead University Library’s very appropriately themed Christmas Tree.

 

Reference:

Banting, K. G. & S.M. Corbett (2002) Health policy and federalism: a comparative perspective on multi-level governance. Montreal : McGill-Queen's University Press.

Comments

[genauer]

When I look at the German health system , I find all this Banting stuff totally misleading.

German Health care is neither private nor government but "öffentlich rechtlich". The overwhelming institutions do no go by any "state" ("Länder") borders. Given that the largest German state, North Rhine Westfalia, counts 17 Mio people, vs the Austrian 7 Mio, to characterize them as (maybe even more) centralized, is at least strange.

21 of the 31 Countries of the IMF definition of "developed markets" (pretty close to the OECD group) are smaller than the largest German province

One thing on the reschedule list, how is the minimum wage / unemployment in Ontario doing?

It would be interesting to compare NOW to the US
http://econbrowser.com/archives/2014/12/new-estimates-of-the-effects-of-the-minimum-wage

[genauer]

Hi Livio,

coming back to http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/07/the-real-minimum-wage.html

and looking at http://www.stats.gov.nl.ca/statistics/Labour/PDF/UnempRate_Monthly.pdf

I dont see any impact (http://de.slideshare.net/genauer/sampler-2-of-imf-2014-weo-data-plots) (with some fantasy some negative 0.2% ? ! ) on relative unemployment numbers in Ontario vs the rest of Canada, with an eyeballed upper sensitivity limit of about 0.2% for Ontario.

Would you agree with that ?

[Livio Di Matteo]

Hi Genauer:
The real minimum wage post I did several months ago looked at youth unemployment rather than the overall unemployment rate. Nonetheless, it is difficult picking out a relationship using just plots. All the best for the New Year!

[genauer]

Hi Livio!

A somewhat late Happy New Year to you too.

I actually tried to look up the youth unemployment in Canada by province and month, but failed.

It would be interesting, because we just started with the minimum wage in Germany this New Year, but all data here are convoluted with lots of other stuff, Greeeeece, Ukraine, embargos here, stupid stuff there, ......

[Livio Di Matteo]

Genauer:
Germany just started a minimum wage this year? Out of curiosity, may I ask what it was set it and how it relates to average wages?

[genauer]

The minimum wage in Germany was set to 8.5 Euro / hour, that would be 10.37 Dollar / hour with a "fair value" of 1.22 USD / Euro

Average wage in 2013 was 19.65 Euro. That would be more like 20.85 Euro in 2015 with 2 years times 3% wage increases (metal workers 5%)

http://www.cecu.de/durchschnittsgehalt.html (no newer or english data available)

8.5 / 20.85 = 40.8% minimum wage fraction for all of Germany, about 50% for the eastern provinces ("Länder", like Sachsen)