1. 1 Outline of social budget Nov 2010 Bangkok Hiroshi Yamabana International Financial and Actuarial Service (ILO FACTS) Social Security Department ILO E-mails:yamabana@ilo.orgyamabana@ilo.org hiroshi.yamabana@gmail.com

2. 2 Structure of the presentation 1.Model hierarchy 2.Demography 3.Labour supply 4.Economy 5.Health care 6.Pensions

3. 3 1.Model hierarchy 1.Methodology Quantitative models need to be consistent with and to reflect demographic and economic context. Realistic demographic, labour market and economic frames need to be established, which supply major parameters to specific social security financing modules (e.g. health care, pensions).

4. 4 1.Model hierarchy

5. 5 2.Demography 1.Methodology Representing mainly the ‘natural’ process, i.e. cohort-wise flow method (i.e. creating death, birth, migration by generations) Data disaggregation (1)Age (2)Sex (Different biological characteristic for birth and death, different social behaviour for migration)

6. 6 Idea of cohort-wise demographic projections

7. 7 2.Demography (Contd.) 2.Starting data Number of persons by age and sex 3.Future assumptions (dynamics) Fertility rates by age of women Sex ratio at birth (:= Male birth / Female birth) Net migration (rate) by age and by sex Mortality rates by age and by sex =>Historical observations and future scenarios required.

8. 8 2.Demography (Contd.) 4.Indicators (controlling parameters) Total Fertility Rate (TFR) <=Age-wise fertility rates of women Life expectancy at birth (males / females) <=Age-wise mortality rates

9. 9 Population in Thailand

10. 10 Population in Thailand

11. 11 3.Labour supply 1.Methodology Labour force (by age and sex) =Population *Labour force participation rate 2.Future assumptions Labour force participation rate (by age and by sex) =>Historical observations and future scenarios required (e.g. Pensionable age, education, women’s participation)

12. 12 Labour market supply: the participation rate

13. 13 Labour market supply: the participation rate

14. 14 Labour market supply: the participation rate

15. 15 Labour market supply: Thailand

16. 16 4.Economy 1.Methodology 1.1National economy and labour demand GDP =Labour productivity (=: GDP / employed) *Number of employed Primary distribution of income (wages etc.) Wages = GDP * (labour income share) Note:Increase in GDP, labour productivity and wages are considered in real terms 1 + (annual rate of nominal increase) =(1 + annual rate of real increase) *(1 + inflation rate)

17. 17 4.Economy (Contd.) 1.1National economy and labour demand (Contd.) Labour market demand (employment) Number of employed =GDP / (Labour productivity) Number of unemployed persons =Number of labour force -Number of employed persons 1.2Rate of return on investment Coherent assumptions with wage increase and inflation necessary (normally bigger than the wage increase)

18. 18 4.Economy (Contd.) 1.3(Normal) relation of inflation rate / wage increase / rate of interest Inflation rate <Nominal wage increase <Nominal rate of interest Hence Real wage increase <Real rate of interest

19. 19 4.Economy (Contd.) 2.Starting data GDP by economic sectors GDP by expenditure (i.e. consumption vs. investment share) Number of employed persons by sectors Number of employed persons by type of contract -Self-employed vs. dependent employed -Public / private allocation -Employed covered / non-covered by social protection

20. 20 4.Economy (Contd.) 3.Future assumptions GDP -Rate of real GDP increase (by economic sectors) -Labour income share of GDP Productivity -Rate of real productivity increase Price -Rate of increase in CPI -GDP deflator =>Historical observations plus future scenarios necessary

21. 21 Population, labour force, employed, unemployed - blueprint

22. 22 Economic assumptions: Thailand

23. 23 Population, Labour Force, employed and covered population: Thailand

24. 24 5.Health care 1.Methodology 1.1Consistency with demographic and economic assumptions -Consistent coverage with population / employment -Consistent assumptions on economy Price:CPI, GDP deflator, Price of medicines and appliances Exchange rate Wage:Wage in economy, Wage of medical personnel (e.g. doctors, nurses, midwives) Investment:Rate of return on investment

25. 25 5. Health care (Contd.) 1.2Demand and / or supply-side approach -Depends on the financing methods (or payment mechanism to providers) and the benefit package of the scheme Financing methods e.g.-Budgeting -Fee for service -Capitation Benefit package e.g.-Outpatient care -Inpatient care -(Prescribed) pharmaceuticals -Laboratories

26. 26 5. Health care (Contd.) 1.2 Demand and/or supply-side approach (Contd.) Demand side approach (Measuring at least demographic effects) Analysis of cost increase into several factors e.g.-Number of covered persons -Demographic change (aging) on utilization and unit cost -Other factor on utilization and unit cost Supply side approach Analysis of cost of supply side e.g.-Personnel cost -Medicines -Maintenance of facilities =>Matching demand and supply?

27. 27 5. Health care (Contd.) 1.3 Demand side approach Cost=Number of covered *Frequency (or utilization / probability) *Average cost per case (by age and sex) Frequency analysis of the past: -Frequency increase due to aging -Frequency increase due to other factors Average cost analysis of the past -Cost increase due to aging -Cost increase due to economic development or adjustment of price (e.g. by regulations) -Cost increase due to other factors (e.g. technologies)

28. 28 5. Health care (Contd.) 1.4 Supply side approach e.g.Doctors’ salary =Number of doctors *Average wage of doctors In this case, observations of indicators necessary for realistic planning of supply side: e.g.:Number of doctors per covered persons or cases Number of beds per covered persons or inpatient cases / bed days N.B.:Is the starting point ‘adequate’ (too much room such as low bed occupancies / too many / few doctors / drugs)? Is the ‘velocity’ vector (cost drivers) adequately measured?

29. 29 6.Pensions 1.Methodology 1.1Consistency with demographic and economic assumptions -Consistent coverage with employment -Consistent assumptions on CPI,wage and pension increase and rate of return on investment -Consistent assumptions on mortality rates (mortality of covered persons sometimes different from general mortality)

30. 30 6. Pensions (Contd.) 1.2Annual cohort-wise flow method (Diagonal calculation) -Using demographic structure by age and sex -Creating new pensions (number and amount) by age and sex -Terminating pensions by death etc. 1.3Sequential demographic and financial projections -Diagnosing problems of demographyand replacement rate separately

31. 31 Sketch of projections

32. 32 6.Pensions (Contd.) 2.Starting data 2.1Contributors -Number -Average amount of contribution base -Average past service credits by age and sex 2.2Pensioners -Number -Average amount of pensions by age, sex and benefit type (e.g. old-age)

33. 33 6.Pensions (Contd.) 2.3Scheme parameters Legal parameters -minimum pensions -qualifying periods -accrual rates -contribution rates etc. Governance parameters -coverage rate of insured persons -compliance rates for contributions etc.

34. 34 6.Pensions (Contd.) 3.Actuarial assumptions 3.1Demographic assumptions -Mortality rates -Rates of entry into invalidity -Average expected number of widow(er)s and orphans in case of death of protected persons -Family structure, such as age difference between dead protected persons and survivors by age and sex etc.

35. 35 6.Pensions (Contd.) 3.2Economic assumptions -(Annual) rate increase in wages -(Annual) rate of increase in minimum wages -(Annual) rate of increase in CPI -(Annual) rate of return on investment -(Annual) rate of adjustment (indexation) in benefits -(Annual) rate of increase in minimum pensions etc.