Fiscal rules, powerful levers for controlling the health budget? Evidence from 32 OECD countries

Publicly funded healthcare forms an intricate part of government spending in most Organisation for Economic Co-operation and Development (OECD) countries, because of its reliance on entitlements and dedicated revenue streams. The impact of budgetary rules and procedures on publicly funded health care might thus be different from other spending categories. In this study we focus on the potential of fiscal rules to contain these costs and their design features.

We assess the relationship between fiscal rules and the level of public health care expenditure of 32 (OECD) countries between 1985 and 2014. Our dataset consists of health care expenditure data of the OECD and data on fiscal rules of the International Monetary Fund (IMF) for that same period. Through a multivariate regression analysis, we estimate the association between fiscal rules and its subcategories and inflation adjusted public health care expenditure. We control for population, Gross Domestic Product (GDP), debt and whether countries received an IMF bailout for the specific period. In all our regressions we include country and year fixed effects.

The presence of a fiscal rule on average is associated with a 3 % reduction of public health care expenditure. Supranational balanced budget rules are associated with some 8 % lower expenditure. Health service provision-oriented countries with more passive purchasing structures seem less capable of containing costs through fiscal rules. Fiscal rules demonstrate lagged effectiveness; the potential for expenditure reduction increases after one and two years of fiscal rule implementation. Finally, we find evidence that fiscal frameworks that incorporate multi-year expenditure ceilings show additional potential for cost control.

Our study shows that there seems a clear relationship between the potential of fiscal rules and budgeting health expenses. Using fiscal rules to contain the level of health care expenditure can thus be a necessary precondition for successful strategies for cost control.