Page 11 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

1.1. Healthcare cost containment
Chapter 1 General introduction
General Introduction
Western economies have experienced high healthcare cost growth over sustained periods of time. Healthcare spending almost doubled since 1970 in countries of the European Union (EU-15), from an average of 5.5% of the economy in 1970 to 10.2% in 2014, outpacing economic growth by 1.4% per year (WHO, 2018). Several factors account for high spending growth, such as technology growth, increases in income, demographic trends and socio- economic trends (De la Maisonneuve et al., 2016; Di Matteo, 2005; Hartwig, 2008; Martín et al., 2011; Reich et al., 2012b). Largely, additional healthcare spending has produced benefits to society, increasing health and longevity (Cutler and McClellan, 2001). However, additional health and longevity gains may become increasingly costly (Cutler et al., 2006) Furthermore, some individual cost drivers may add little value, such as cost-ineffective medications, increases in overuse or lagging productivity (Brownlee et al., 2017; Erixon and Van der Marel, 2011; Pearson, 2017; Sage, 2017).
Healthcare in European countries is financed predominantly collectively. Therefore, increases in healthcare costs require governments to raise funds by increasing taxes or premiums, taking on extra government debt or liberating alternative government expenditures. However, the ability of governments to increase taxes may be limited for political and economic reasons (Trabandt and Uhlig, 2009; van den Berg et al., 2011). Furthermore, the European debt crisis proved increases in government debt to be an irresponsible option. Healthcare growth risks crowding out other government spending, like education or infrastructure (Baicker and Skinner, 2011). If the benefits of these alternative government expenditures outweigh the benefits of increased health spending, healthcare cost containment will improve welfare. In addition, healthcare spending requires a substantial redistribution of resources from healthy individuals to the ill. The willingness of healthy individuals to pay for health costs of the ill may not be unbounded, especially if these costs result from unhealthy lifestyles (Buchanan, 2011; Jeurissen, 2005; Kloosterman, 2011). Cost containment may help to sustain solidarity principles in health (Cutler, 2002; Helderman and Jeurissen, 2010; Hinrichs, 1995).
Furthermore, not all funds in healthcare are spent efficiently (OECD, 2017b). Market failures, such as adverse selection, moral hazard and information asymmetry are more abundant in healthcare than in other sectors (Arrow, 1963; Helderman and Jeurissen, 2010). This is reflected in large variations in clinical practice (Skinner and Staiger, 2015; van
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