Healing Health Care Finances

Health care presents a daunting fiscal challenge in both advanced and emerging economies. This paper examines public spending pressures in health care over the next several decades and provides recommendations for reform. Using a methodology that improves upon earlier studies, the paper finds that public health spending will rise by 3 percent of GDP over the next 20 years in advanced economies, and in emerging economies, by 1 percent. For advanced economies, the most promising reforms to contain the spending of growth in an efficient and equitable manner involve a mix of budget controls and efficiency-enhancing reforms, including the introduction of market mechanisms and public management reforms that strengthen incentives for the provision of cost-effective care. Simulations show that these reforms could significantly reduce the fiscal burden of health care over the next 20 years. For emerging economies, the expansion of health care coverage should be based on a package of the most essential health services to ensure fiscal sustainability.