Growing wealth has resulted in greater spending on health, report argues

BMJ 2013; 346 doi: (Published 30 January 2013) Cite this as: BMJ 2013;346:f619
  1. Nigel Hawkes
  1. 1London

In 50 years’ time the United Kingdom could be spending 20% of its gross domestic product on the NHS, putting a relentless squeeze on other government spending, concludes a new analysis by John Appleby, chief economist at the health think tank the King’s Fund.1

At that level, spending on the NHS would account for half of all government revenue, and the service would employ one in eight of the working population, reducing the share spent outside the health and social care budgets from 80% in 2016 to 50% in 2061.

The prediction assumes that health spending rises as a proportion of GDP as rapidly as it has over the past 50 years, from 3.4% half a century ago to 8.2% today. Such a level of healthcare spending would be affordable—the United States already spends more than 17% of its GDP on health. However, diminishing returns would set a limit: at some point, Appleby argues, one additional pound of health spending would generate less than a pound’s worth of health benefit, or the benefits from spending the pound on other services would be greater.

The mounting pressures do not, for the most part, come from an ageing population. It is true that healthcare costs are concentrated at the end of life, but a longer life postpones rather than increases costs, and there is even evidence from Canada that the greater the age at which people die the lower their healthcare costs. However, an ageing population does have implications for spending on social care.

Why do the costs of healthcare rise so inexorably, if the reason is not demography? Of the 4.3% per year rise in such costs in the countries of the Organisation for Economic Co-operation and Development between 1970 and 2002, Appleby reports that only a 10th (0.4%) was due to the ageing population. A much more important factor is growing wealth, because as people grow richer they are prepared to pay more for healthcare. This accounts for growth of 2.5% a year, leaving a “residual” of 1.5% a year that is not easily accounted for.

This 1.5% may be, he suggests, the “string quartet” effect first identified by the economists William Baumol and William Bowen in the 1960s. In Beethoven’s day it took four musicians to make up a string quartet, and the same is true today—but the earnings of the players are now much higher, so their productivity has declined. String quartets cannot increase their productivity by dispensing with the viola player without ceasing to be a quartet. As with music, so with healthcare: cutting the numbers employed and increasing the productivity of the system is hard. So costs are dragged up by the increasing costs of labour, with no balancing gains in productivity. Healthcare suffers from “a cost disease.”

Although increased health spending may be affordable, it is not necessarily desirable. Periodically, Appleby suggests, the UK should repeat the analysis done by Derek Wanless for the Treasury in 2002 to ascertain whether any extra spending is worth the cost. The evidence of surveys of public opinion is that the appetite for increased spending has diminished: while 83% of the public put a high priority on it in 2000, that figure has fallen to 68% today, inversely mirroring the actual increases in spending over the period.

Appleby said, “While there is nothing inevitable about spending on health and social care continuing to increase in line with historical trends, the pressure to spend more is likely to see it consuming an ever larger proportion of national income.

“It is time to think much more long term about how much we should spend, the benefits of this spending, and how it should be paid for. By turning the spotlight on these issues now, we hope to stimulate an informed debate about the difficult choices ahead.”


Cite this as: BMJ 2013;346:f619