interviews

Why think long term?

The King’s Fund’s new report on the long-term trends in health spending in this country asks whether we’re set to see an ever-greater proportion of GDP and public spending dedicated to health and social care, and how feasible this is. But the spending pressures in health are far less to do with the ageing population than many commentators instinctively assume. NHE discussed the report with its author Professor John Appleby, who has been chief economist at The King’s Fund since 1998.

The amount of the UK’s gross domestic product (GDP) spent on the NHS has risen from 3.4% to 8.2% in the last 50 years – seven times higher in real terms.

What are the causes of the rise, and what does the trend tell us about future health spending?

How close are we to a plateau in health spending, and is it driven by political reaction to public pressure, or new health technologies and treatment options, or the way we live and how long we are living?

If this trajectory continues, the UK could end up spending nearly one-fi fth of its GDP, and nearly half of all public spending, on health and social care. Would this be financially feasible or politically tenable?

Professor John Appleby, report author and King’s Fund chief economist, told us: “We’re looking 50 years ahead – anything could happen, but the best estimates suggest spending is going to go up, or at least the pressure is going to go up.

“But the point our report makes is that this is, for us in the UK at least, a choice.

“We control and make decisions about spending. Those decisions have consequences and we’ve got to a point now where we’re spending roughly £1 in every £10 on health and social care. Is that enough? Do we want to spend more? The pressure will be to spend more.”

He noted that the tone of much national press coverage of the report was that spending more would be “disastrous”.

But he told us: “It isn’t – not necessarily.”

Indeed, spending on health and social care is not a waste or just a burden on the state: the report notes that higher spending can improve the p o p u l a t i o n ’ s health, wellbeing and quality of life, and have wider positive impacts on economic activity and productivity.

Impact of ageing

The ageing population and rise in long-term conditions is often cited as a major worry for the NHS in the medium term, and a reason to reconfi gure care out of acute settings and more into the community and the home.

It’s seen as a major driver of increased spending, and a timebomb facing the NHS in an era of squeezed resources.

But over the very long-term, it’s much less of a factor than you might think.

Professor Appleby explained the findings: “People tend to use the ageing population as a shorthand, it’s such an intuitively obvious thing: elderly people are the main consumers of healthcare, we’re going to have more elderly people according to the population projections, therefore that’s the main driver.

“But in fact a lot of research has been done on this, and a lot of economists and others have asked why healthcare spending in virtually all countries has gone up over time.”

“They’ve come up with a different and reasonably consistent answer, which is that while obviously population growth and ageing have an impact, it’s not nearly as big as other factors, such as the fact that we keep inventing new things to do to people, and once they’re out there they tend to get used. If we build the beds, people are going to lie in them.

“Ageing and long-term conditions will have an effect as a pressure to spend more, but maybe the biggest impact is how we spend, and what do we spend on: it’s not so much the size of the cake, but how it’s divided up.”

For his landmark 2002 report, Derek Wanless was asked by the Government to investigate how much we should spend in the future on healthcare – “in part to justify a political decision that had already been taken to spend more”, Professor Abbleby noted.

“His starting point was to ask what sort of healthcare system we want, how well we want it to perform – that approach has stood the test of time. That’s one of the reasons for this publication; to pick up on Wanless’s suggestion that this sort of exercise should be carried out regularly. Not every year, but maybe every five, someone should be looking at where we are now and what the future will look like.”

Is it worth it?

The Office for Budget Responsibility (OBR), independent from the Treasury, also forecasts future spending, and said last year that by 2061 the NHS could account for anything from 7.8% to 16.6% of GDP, with long-term care costing 1.5% to 2.5% of GDP by the same date.

Appleby said: “Their work is very good and useful, and a good basis for settling the questions they are asked to tackle – the sustainability of public spending.

“But there are other questions: it’s not just about ‘will we break the budget’, but way before that point, is it worth carrying on spending? The returns are perhaps not what we think and not what we want – that’s not a policy question that it’s their role to answer.

“They do a lot of good work, I know them, and their work is reasonably sophisticated. But of course it’s in part guesswork, which is why they come out with such a range of views about the future.

“I saw work done in Australia that looked at future health spending down to the level of individual clinical specialisms. That is interesting because it’s not just looking at the total cake, but where exactly the pressures to spend more are coming from. That’s a different approach that gives you a different insight.”

Public attitudes

Health spending cannot go forever upwards as a proportion of GDP and of public spending, of course, for mathematical reasons as well as political ones.

Appleby told us: “Clearly there will come a point – 50% of GDP on healthcare? Surely before that point we’ll ask the question, ‘is it worth it?’ and one of the policy recommendations in the report is finding out how we will know if it’s worth it. We need to get some evidence on that.”

The public does seem to have noticed increased spending. In the British Social Attitudes Survey, for example (the health questions for which are now sponsored by the King’s Fund), the public desire to spend more on health has tracked down since the 1990s and early 2000s, as spending has gone up.

But as the report itself notes: “As spending rises, diminishing returns are likely to set in, and at some point the additional cost could exceed either the additional health benefit, or the benefits to be had from spending on non-health and social care services.”

Spending policy choices

• Although better projection models will provide better information about future spending pressures, there seems little doubt that the pressure will be to spend more. There is therefore a need to understand both the consequences of higher spending and the options available to meet such spending pressures.
• To inform public debate, policy options should include the quantification of possible trade-offs with other government spending. They should also consider the scale of the possible impact on tax and borrowing. Analysis of the distributional, access and health consequences of any moves to change or supplement the current funding base of the NHS and long-term care need to be part of this debate.
• Of great importance is the need to assess the economic sustainability of increased spending. Although much higher spending over the long term may be affordable, more is not necessarily better, either in the aggregate or, more particularly, in terms of what the global budget is spent on. Although NICE aims to assess the latter, there is also a need to apply a similar economic approach to additional funding overall in order to ascertain whether any extra spending is worth the cost. (Source: Spending on health and social care over the next 50 years: Why think long term? The King’s Fund, 2013)

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