Healthcare at a Crossroads

Q&A with IESE Prof. Núria Mas

10/09/2013 Barcelona

Núria Mas

Healthcare in advanced economies today is at a crossroads. Faced with economic and social risks threatening the sustainability of health and welfare systems, many countries are asking themselves difficult questions: How can our debt-ridden economies contain healthcare costs and at the same time continue to provide quality services? Does cost-sharing help reduce costs without affecting the health status of the population?

IESE Associate Professor of Economics Núria Mas, a Catalan native with Harvard University training, explores many of the key questions surrounding the healthcare debate in her research. Her work spans healthcare systems in the U.S. and Europe and focuses on how hospitals and doctors respond to different incentive mechanisms. She speaks to Impact@Work about the major trends threatening our welfare system and new approaches that will help society understand where to go from here.

What are the major economic trends that are influencing or will continue to influence our health and welfare systems?

Large public and private debt combined with demographic changes are the major forces that will continue to impact our health and welfare systems.

In most advanced countries, the debt over GDP level has continued to increase. For example, in Spain, the debt over GDP level was less than 40% in 2007 and is now above 84%. In the U.S. it grew from 62% to 100% during the same period. Though other countries like Sweden have succeeded at reducing their debt over GDP level, generally in advanced economies, debt continues to be too high. Unfortunately, the projections are not optimistic over the short-term, with growth expected to be slow for some time.

Even more worrisome than current debt levels are the anticipated future debt levels that will result from unfunded liabilities, i.e., the promises of pensions and healthcare made to future generations. Since growth is expected to be slow, governments will be using debt to fund pensions and healthcare, once again increasing the debt to GDP ratio.

How do demographic shifts come into the picture? What are the consequences of a larger aging population for our health and welfare systems?

As a larger proportion of the population gets older, there is an increased burden on our health and welfare system. This deteriorating dependency ratio – the ratio of elderly people to working age people – exacerbates not just public finances from the point of view of pension payments, but also due to the nature of diseases that longevity brings with it. As we live longer, the number of people suffering from chronic conditions increases.

So just to give you an idea of how longevity affects the population’s use of healthcare resources, in the U.S., patients with at least one chronic condition represent 85% of healthcare utilization. In the U.K. the trend is similar, with patients with chronic conditions making up 80% of primary care consultations and 66% of emergency hospital admissions.

These numbers give you an idea of the mismatch between the healthcare needs of an aging population, and welfare and healthcare systems that were originally designed with a population pyramid in mind. The pyramid evolved into something else completely and that brings us to the crossroads where we are today.

What does your research tell you about this crossroads? How should advanced economies rethink their welfare and healthcare systems?

There are many things to rethink both for the labor market for goldenworkers (workers over 65) and in healthcare. Certainly a labor market that is more attractive and inclusive of goldenworkers is one way to improve the dependency ratio.

In terms of healthcare, there are many things to consider to improve the state of affairs. The first thing to keep in mind is that we have some room for improvement. For instance, in a recent report, the U.S. Institute of Medicine found that about 30% of healthcare spending does not translate into better health. In this context, identifying the scope for improvement is crucial; it means that we can achieve what is called "The Triple Aim": cost containment, better quality in health and a better care experience for the patient.

Learning from other experiences around the world and creating evidence-based policies are also essential. Fortunately, we have more and more information available to us about what works and what doesn’t in many different countries and contexts.

Having access to this data is paramount for the development of sound policies, and this is one way society will be able to think up new approaches. A good policy design and transparency are key ingredients. Determining a clear goal in the design phase and linking the policy to indicators that are used to measure whether objectives have been achieved or not, are very important. Allowing stakeholders to understand what works and why leads to better policy decisions and therefore better use of public funds. As these are more and more scarce, justifying their use through policies that produce satisfactory outcomes is more important than ever.

In terms of understanding what works and what does not in different countries, you have done quite a bit of research on co-pay. Can you discuss your findings about whether and in what situations cost- sharing works?

We now have evidence from many countries that have some sort of cost-sharing policies including Taiwan, Canada, Australia, Italy and Spain. The central questions surrounding the debate today about co-pay are whether it simply reduces costs or allows healthcare systems to also optimize resources. Another important question is who should assume the burden of cost-sharing: the entire population equally, independently of income? And finally, is cost-sharing effective across the board, or should the policy target specific services?

The evidence from many countries shows that copayment generally reduces the utilization of healthcare services, yet this reduction does not translate into a reduction in the overall health of the population. However, data also shows that when patients have to decide, since they are not experts in health, they tend to make mistakes, reducing both valuable and less valuable health services and treatments.

Hence, we have to be careful about how we apply copayment, i.e., exactly who picks up the tab and for what services. Studies show that, although the overall health of the population does not diminish when co-pay policies are in place, certain segments of the population do suffer including patients with chronic diseases as well as the poor. In this respect, if one considers the possibility of applying a certain copayment scheme, it is important to include a maximum annual payment or to exclude some groups of the population from having to copay.

In addition, data shows that patients have different sensibilities to prices across different types of services. For instance, patients tend to reduce more their demand of preventive care as opposed to that of acute care. All this has to be taken into account when designing a copayment system.