Sustainable Health Financing with an Ageing Population: Implications of different revenue raising mechanisms and policy options [Internet]

Excerpt

1. Population ageing affects a country’s ability to generate revenues for health.

2. We simulate the effects of population ageing on the ability to raise revenues for health from income taxes, goods and services taxes, property taxes, and social contributions. We find that:

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      For countries with a relatively younger population currently undergoing a rapid population age-structure transition, all revenue sources have the potential to grow considerably over the medium- to long-term. The challenge is to improve tax collection and the priority given to health to take advantage of this potential.

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      For countries with a large share of the population at older ages, revenues from social contributions linked primarily to the labour market are expected to decline substantially as a result of population ageing.

3. Three general policy options could address declining labour market-related social contributions due to population ageing. They include:

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      expanding the revenue base by increasing the number of contributors, such as by increasing migration rates or increasing the effective retirement age;

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      increasing the contribution rate on social contributions; and

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      diversifying the mix of financing sources.

4. Simulations suggest that these strategies in isolation are unlikely to fully compensate for the shortfall in revenues in countries that depend heavily on the labour market to finance health.

5. Health and long-term care financing systems that are heavily reliant on labour market-related contributions may need to be redesigned if they are to continue to generate sufficient, stable revenues in the context of population ageing. This will require political commitment and a willingness to prioritize health.

6. This research underscores the importance of moving away from financing health through labour-related contributions and premiums and, as a result, de-linking entitlement to care from the payment of contributions. Taxation policies can ensure health financing is both sustainable and equitable.