How much is enough: what should we be spending on the NHS? Anita Charlesworth November 2015

UK health spending is about average in the EU Nov 2016 How much is enough: what should we be spending on the NHS? UK health spending is about average in the EU Source: Organisation for Economic Co-operation and Development (OECD ) health statistics, 2016

The UK is about average for government/SHI spending Nov 2016 How much is enough: what should we be spending on the NHS? The UK is about average for government/SHI spending Source: Organisation for Economic Co-operation and Development (OECD ) health statistics, 2016

Nov 2016 How much is enough: what should we be spending on the NHS?

Nov 2016 How much is enough: what should we be spending on the NHS?

Nov 2016 How much is enough: what should we be spending on the NHS? Estimated public spending on health in the UK as a percentage of GDP, 2009/10 to 2020/21 Source: Health Foundation evidence to the House of Lords Committee on the long-term sustainability of the NHS

Nov 2016 How much is enough: what should we be spending on the NHS? Average real terms annual growth in health care expenditure and GDP in 18 OECD countries, 1988-2012 Source: OCED Data

Nov 2016 How much is enough: what should we be spending on the NHS? Drivers of changes in national health care spending are usually considered under four headings: Demographic pressure: a growing population means more people needing health care; and the good news that average life expectancy is increasing means that a growing proportion of the population is elderly, which in turn means higher health care spending because the need for health care is greatest among the elderly; Expectations of ever better health care: expectations that increase with income and as scientific and technical progress expands the scope of what health care can do; New technologies increasing the range of health care that is possible, but also offering opportunities to improve the productivity of health care; Relative price effects: because much health service spending is on providing care that necessarily requires face to face contact time between health care professionals and individual patients, meaning that productivity is hard to improve in those areas (an hour of care always takes an hour) while health care professionals’ wages must rise in line with those in the rest of the economy.

Nov 2016 How much is enough: what should we be spending on the NHS? Classification by Przywara, 2010, of factors underlying developments in HCE Source: Przywara, 2010

Approaches to modelling health care expenditure Nov 2016 How much is enough: what should we be spending on the NHS? Approaches to modelling health care expenditure Micro-simulation models, which track hypothetical patients through life events and calculate HCE at the individual level. Such models are complex and extremely data intensive, but provide a powerful analytical tool. The authors suggest this type of modelling is particularly useful to test ‘what-if’ policy questions, as individuals can be gathered into policy relevant groups, simulated through their life-time, and analysed accordingly; Component-based models, which estimate expenditure for different components and then combine these – the different components could be financing agents, providers, goods and services, or groups of individuals (for example different age groups). Component-based models are less demanding in their data requirements than micro-simulation models, and they are also relatively simple to implement and maintain. The impact of policy changes can be assessed through manipulation of any policy parameters. Astolfi et al. speculate that these reasons explain the popularity of this type of model in the policy arena;  Macro-level models, which typically analyse aggregate health expenditures through regression analysis of time-series data. The authors suggest that macro-level models are often well suited to short-term projection where trends are undisturbed. Projections within macro- level models are either based on the extrapolation of time-series data, or on projected values of key explanatory variables, therefore this type of modelling is less demanding than others in terms of data requirements and computational burden.

NHS England five year forward view Nov 2016 How much is enough: what should we be spending on the NHS? NHS England five year forward view Source: NHS England Source: NHS England

The four steps used to project funding pressures Nov 2016 How much is enough: what should we be spending on the NHS? The four steps used to project funding pressures

Regression results Nov 2016 How much is enough: what should we be spending on the NHS? Regression results

Nov 2016 How much is enough: what should we be spending on the NHS?

A comparison of key underlying assumptions for health spending Nov 2016 How much is enough: what should we be spending on the NHS? A comparison of key underlying assumptions for health spending   Health status (morbidity) Income effect (elasticity) Other cost pressures OBR (2015) Implicit expansion 1 Not included CBO (2016) Healthy ageing Converging to 1 per cent by 2046 European Commission (2015) reference scenario 1 year gain in life expectancy = 1/2 year in good health 1.1 in 2013 converging to 1 in 2060 OECD (2013) cost-pressure scenario 1 year gain in life expectancy = 1 year in good health 0.8 1.7 per cent (not country specific) IMF (2010, 2012) 0.3 (not country specific) 1.5 per cent (country specific)

Income elasticities for national HCE (OECD countries) Nov 2016 How much is enough: what should we be spending on the NHS? Income elasticities for national HCE (OECD countries) Sample Model description Elasticity Reference 13 developed countries Cross section >1 Newhouse (1977) 19 OECD countries Leu (1986) 18 OECD countries Parkin, Mcguire and Yule (1987) 20 OECD countries Panel data Close to 1 Hitiris and Posnett (1992) Time series No long-term relationship Hansen and King (1996) 10 OECD countries Hitiris (1997) 15 OECD countries <1 Sen (2005) 21 OECD countries Panel cointegration techniques Dreger and Reimers (2005) 17 OECD countries Multivariate regression model Chakroun (2009) Baltagi and Moscone (2010) 16 OECD countries Mehrara, Musai and Amiri (2010) 22 OECD countries Semiparametric panel varying coefficient model Liu, Li and Wang (2011) Source: Lago-Penas et al., 2013

Nov 2016 How much is enough: what should we be spending on the NHS?

Nov 2016 How much is enough: what should we be spending on the NHS? A comparison of estimates of NHS efficiency and productivity improvement   Scope Annual average change University of York, 2016 England, NHS wide Total Factor Productivity (TFP) with quality adjusted output, 2004/05 -2013/14 1.4% ONS, 2015 UK NHS Wide TFP with quality adjusted output, 1997- 2013 0.9% OBR, 2016 Combined projection of Oliver 2005 and ONS, 1979-2013 1.2% Deloitte, 2014 English NHS acute hospitals efficiency frontier shift, 2008/09 -2012/13 1.2% The Health Foundation, 2016 Acute Care in English NHS hospitals, 2009/10-2013/14 0.1% Monitor, 2016 English NHS acute hospitals 2008/09-2013/14 Source HoL Briefing Source: Health Foundation evidence to the House of Lords Committee on the long-term sustainability of the NHS

Nov 2016 How much is enough: what should we be spending on the NHS? Sensitivity of health spending to alternative productivity assumptions in the health sector

Average annual increase UK NHS spending Nov 2016 How much is enough: what should we be spending on the NHS? Average annual increase UK NHS spending Average projected annual increase of UK NHS spending between 2020/21 and 2030/31 OBR, 2016

Average per head increase UK NHS spending Nov 2016 How much is enough: what should we be spending on the NHS? Average per head increase UK NHS spending Average projected annual increase of UK NHS spending per head between 2020/21 and 2030/31 OBR, 2016

Projected increase UK NHS spending Nov 2016 How much is enough: what should we be spending on the NHS? Projected increase UK NHS spending Projected increase of UK NHS spending between 2020/21 and 2030/31, from OBR and Health Foundation Source Assumption % GDP in 2030/31 Average annual increase, 2020/21 to 2030/31 Average annual increase per head, 2020/21 to 2030/31 Estimated increase funding from 2015/16 (2016/17 prices) Health Foundation No productivity 8.1% 4.2% 3.6% £80bn Productivity of 1.0% a year 7.4% 3.3% 2.7% £61bn Productivity of 1.5% a year 7.1% 2.8% 2.2% £53bn OBR OBR Central 7.6% 3.5% 2.9% £67bn OBR Low productivity 8.3% 4.4% 3.8% £86bn OBR Constant other pressures 8.9% 5.1% 4.5% £102bn OBR Declining other pressures 8.8% 5.0% £99bn OBR, 2016; The Health Foundation, 2016

The determinants of public health expenditure in the OECD model Nov 2016 How much is enough: what should we be spending on the NHS? The determinants of public health expenditure in the OECD model Source: de la Maisonneuve and Oliveira Martins, 2013

Nov 2016 How much is enough: what should we be spending on the NHS? Health care expenditure projection models – from Astolfi et al. (2012), updated to include de la Maisonneuve and Oliveira Martins (2013) and European Commission (2015) Real health spending per capita in 2005 PPP* $US Age effect Income effect (income elasticity =0.8) Residual Residual with unitary income elasticity Average annual & change Average annual % contribution to change in spending EU15 3.8 0.4 1.5 2.0 UK 4.6 0.2 2.8 2.5 US 3.6 0.3 1.1 2.3 OECD Average 4.3 0.5 1.8 Source: de la Maisonneuve and Oliveira Martins, 2013

Change in age-related spending in the OECD (2010-2060) Nov 2016 How much is enough: what should we be spending on the NHS? Change in age-related spending in the OECD (2010-2060)