42
2.6. Political Implications
According to our estimates, the SHI’s pharmaceutical expenditure will increase by
around 75 % by 2050. As measured by the long projection period of 46 years, this outlook displays a moderate development of the expenditure situation and refutes concerns of any “cost explosion“ in the pharmaceutical sector. Nevertheless, the burden
for individuals will sharply increase since the forecasted cost increase will take place,
although the absolute number of the SHI’s members will decline. Looking at the per
capita expenditure, which will increase by more than 92 %, makes this fact more obvious.
But expenditure on its own possesses limited explanatory power. As long as the SHI
is ? nanced by the pay-as-you-go principle, the ageing population causes two problems
for the ? nancial sustainability: apart from pressure on the expenditure side, the ageing
population leads to changes in the contributors’ structure. Assuming that the quota of
retired and employable SHI members changes proportionally to the development of
the whole population, the ratio of retired SHI members to non-retired contributors will
increase from 0.5 in 2004 to 0.86 in 2050. This will necessitate higher redistribution
between younger and older people in the future.
How much this development will affect the contribution rates is dif? cult to predict
because a wider set of unveri? able assumptions must be made. In 2004 around 2.25
percentage points of the average SHI contribution rate was needed to ? nance pharmaceutical expenditure. This share could reach approximately 3.5 percentage points in
2050, i.e. an increase of more than 55 %.24 Even under the hypothesis that pharmaceutical consumption accelerates more than total health care expenditure, SHI contribution rates of more than 20 % must be expected.
With the objective of reducing or at least stabilising non-wage labour costs and to
guarantee the ? nancial sustainability of the pay-as-you-go system, political adjustments to the SHI’s regulatory framework usually aim towards cost-containment. But
so far the various reform acts have failed to limit the almost linear trend of increasing
drug expenditure. However, the analysis of the age-related consumption and expenditure pro? les delivers insights into the causes of the predicted development and should
enable more purposeful regulation.
We have seen that the purely demographic effect has only a minor in? uence on future expenditure development. With respect to age-independent, acute diseases even a
declining impact from the ageing population can be observed. Thus more important
than the absolute increase in the number of older people are variances of the age-re-
24 Assumptions: constant share of retired SHI members of all people beyond 60 years as well as of
employable SHI members of all people between 20 and 60 years; constant bene? t level of 50 %;
annual real growth of gross income according to the development between 1991 and 2004
(0.5 %). All other variables are presumed to be constant. Monetary values have been de? ated
with the cost-of-living index (2000 = 100 %). Sources: Ministry of Health (2005a) and German
Pension Insurance (2006).
43
lated pro? les, which are expressed by the total pro? le effect. In general, two main explanations for the pro? les’ alterations are conceivable: modi? cations in consumption
and prescription behaviour due to the changing attitude of consumers and suppliers of
health care services and medical technological progress. From a political point of
view, therefore, the market behaviour of the health care actors and technological
progress are the crucial starting points for effective regulatory intervention.25
Regarding market behaviour, the relationship between the protagonists of the health
care sector suffers from two de? ciencies: asymmetric information and lack of cost
consciousness (e.g. Oberender et al. 2006). The information problem directly results
from the attributes of the market for health care services and is usually used as evidence of market failure. But how far asymmetric information justi? es state-run control
is controversial. Many markets are characterised by an unequal information distribution, but function well without the need for public interventions.26 The SHI’s incentive
system, however, not only does not improve, but reinforces the information problem.
This is due to the lack of cost consciousness of insurants and physicians in the wake
of limited competition within the SHI. On the one hand, the obligatory comprehensive
insurance coverage associated with insuf? cient deductibles eliminates the price mechanism and leads to exaggerated demand for reimbursable drugs. On the other hand,
physicians have almost no incentive to impede demand-sided moral hazard welfare
losses. Hence the decisive governor to ensure an appropriate level of drug provision
is to overcome the costs insensitivity of insurants and physicians. Therefore ? nancing
schemes must be found which are applicable for reconstituting the price mechanism.
Not until patients participate in proportion to the real costs of drug consumption, will
incentives to gather information about ef? ciency and cost-effectiveness of physicians’
prescription decisions accrue.27 But even though moral hazard welfare losses can be
reduced, there will always be a threat of increasing expenditure due to medical technological progress. Advancements in the science are hardly predictable and cost increases caused by introduction of new, innovative drugs can only be controlled a
limited amount. Thus, applying a pay-as-you-go principle in an ageing society combined with the political doctrine which ensures comprehensive medical provisions for
25 Most of health economics literature identi? es technological change as a primary driver of increasing medical costs. E.g. Newhouse (1992) suggested that more than 50 % of the total rise in
real health care expenditure is attributable to technological advancements (see also Weisbrod
1991, Cutler and McClellan 1998). This ? nding “appears to contradict conventional wisdom.
Outside of medicine, technological change is identi? ed as the primary driving force behind improved productivity” (Gelijns and Rosenberg 1994, p. 29). But in medical care technological
progress entails two basic mechanisms: ? rstly, the substitution of old treatments by new ones.
The substitution effect often lowers unit costs. More important, however, is the second effect:
technological change leads to the extension of new treatments. It increases the demand for
expensive new goods and services without regard for its costs and bene? ts.
26 Oberender et al. (2006) refer to market institutions such as guarantees, standards and reputation.
Furthermore they highlight the role of sickness funds or health insurances to act as information
agents.
27 An appropriate ? nancing mechanism is presented in chapter 4.
44
everyone28 is always risky and jeopardises the long-term ? nancial sustainability of the
SHI.
2.7. Conclusion
To my knowledge this chapter delivers the most comprehensive approach to ? nding
evidence for the impact of population ageing on the development of SHI’s drug expenditure in literature. By means of principal components and cluster analysis it has
been shown that it is possible to identify groups of pharmaceuticals whose members
possess similar demand characteristics which are related to the variables “age-dependency“ and “acuteness“ of diseases. Analysing the trends of the per capita age-related
drug consumption pro? les, a strong indication can be found for the validity of the
compression thesis for drugs against acute, age-dependent diseases. On the contrary,
the more chronic the diseases, the more indices for the medicalisation thesis can be
found. Thus, consumption of drugs against chronic diseases will be the main cost
driver in future.
Based on these observations, an outlook on the future development of drug expenditure has been accomplished. As opposed to forecasts which use aggregated data, the
separate consideration of diverse disease patterns should deliver more robust predictions. Accordingly, by 2050 pharmaceutical disbursements will increase by 75 % in
total and 92 % per capita. As measured by the long projection period of 46 years, this
outlook displays a moderate development of the expenditure situation and stays below
the results of most surveys about the SHI’s total health care expenditure development.
But the ageing population causes two problems for the ? nancial sustainability of the
SHI, since the decreasing number of employable people lowers the contribution assessment basis and necessitates higher inter-generational redistribution. Under the assumption that future developments will follow recent trends and under the exclusion
of key cost-reducing innovations, it can be stated that the stability of the SHI’s pay-asyou-go system is highly jeopardised. The political aim to ensure long-ranging contribution rate stability is only achievable when institutional arrangements can be found
which are appropriate to absorb the imminent cost pressure.
28 “All citizens, irrespective of their ? nancial situation, place in society or place of residence, must
have access to the resources that allow them to maintain or regain their health.” (Ministry of
Health, http://www.bmg.bund.de, Dec. 2006).
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References
Zusammenfassung
Der Arzneimittelsektor der Gesetzlichen Krankenversicherung stand wiederholt im Fokus zahlreicher Gesundheitsreformen. Dennoch ist es bislang nicht gelungen, den Trend steigender Ausgaben nachhaltig zu bremsen. Die vorliegende Untersuchung leistet einen Beitrag dazu, die Ursachen dieser Entwicklung zu erklären und Lösungsansätze aufzuzeigen. Mittels Hauptkomponenten- und Cluster-Analyse wurden Gruppen von Arzneimitteln mit vergleichbaren Konsumeigenschaften gebildet. Jede Gruppe wurde auf den Einfluss der Altersabhängigkeit und des technologischen Fortschritts hin analysiert. Aufbauend auf diesen Ergebnissen wurde eine Prognose der zukünftigen Ausgabenentwicklung bis zum Jahr 2050 erstellt. Obwohl die Hauptkostenfaktoren exogen sind, steht der Gesetzgeber dem vorhergesagten ansteigenden Kostenpfad nicht hilflos gegenüber. Im Gegenteil: Anhand ökonometrischer Tests wird gezeigt, dass die Gesundheitspolitik in der Vergangenheit durch wahl- und klientelorientierte Interessendurchsetzung geprägt war. Mehr Effizienz in der Arzneimittelversorgung könnte durch die Einführung individueller Gesundheitssparkonten erzielt werden. Dies bestätigen die Resultate eines vertikal differenzierten Wettbewerbsmodells.