Abstract:
Average growth in healthcare expenditures relative to GDP in Denmark has been among the lowest in the OECD area since 1970, but growth rates are rapidly increasing. This paper separates the expenditure growth into demographic and non-demographic factors. As an innovation compared to previous analyses we include the effects of so-called healthy ageing into the demographic effects. Annual demographic and non-demographic real growth in publicly financed health expenditures is estimated to be 0.4 pct and 2.0 pct. respectively for the period 1993-2008. For the period 1999-2008 figures are 0.2 pct. and 2.8 pct. The average annual real non-demographic expenditure growth rate exceeds the growth rate in real productivity per working hour by 1.5-2.3 pct. in the period 1999-2008. The effects of growth in healthcare expenditures on fiscal sustainability are assessed and the results are: Fiscal sustainability is robust with respect to growth in health care expenditures due to future increases in life expectancy. This is a consequence of healthy ageing and the indexation of the statutory retirement age to life expectancy that follows from the 2006-welfare reform. Fiscal sustainability remains very sensitive to non-demgraphic factors: An increase in non-demographic expenditure growth of 0.3 pct. in excess of the productivity growth increases the fiscal sustainability problem by 2.1 pct. of GDP. Doubling the expenditure growth relative to productivity growth to 0.6 pct. increases the fiscal sustainability problem by 4.8 pct. of GDP. Therefore current growth in non-demographic healthcare expenditures cannot be maintained for a longer period without challenging the public financing of healthcare expenditures in Denmark
