The challenge of budgeting for healthcare programmes

The OECD has created a Joint Network on Fiscal Sustainability of Health Systems. This article, developed as input to that project, seeks to summarise both why budgeting for healthcare is particularly challenging and why the challenge is often misunderstood. I argue that sustainability is a political, not fiscal, issue; that common explanations of increased spending, such as “ageing” and “technology”, are either inaccurate or unhelpful; and that the nature of public support for healthcare means that standard budgetary worldviews may not be appropriate in a representative system. For example, both a focus on “fiscal space” and distrust of dedicated revenues may be contrary to budgetary values of both representation and balance. I offer explanations of why demand for healthcare spending both is peculiarly intense and tends to expand because notions of “necessary” care expand. Budget-making is made more difficult by a uniquely confusing proliferation of ideas about how to control spending, many of which are supported more by disciplinary biases than by hard evidence. I conclude by considering the impact of two structural features: whether services are delivered by a bureau or as an entitlement, and whether it is funded by dedicated revenues. The challenges can be met, but hardheaded and sceptical budget analysis is especially important. JEL classification: H51, H6, E62, H2, I1, J11, O33, P16, Z18 Keywords: Budgeting, healthcare spending, ageing society, Baumol’s disease, dedicated revenues, efficiency, entitlements, redistribution, technology, unsustainability