Speech by the CFP Chair at the Cascais International Health Forum

Speech by CFP´s Chair, Nazaré da Costa Cabral, at the Cascais International Health Forum, on June 1st, in Estoril.

Plenary Session: “Health Challenges for the Next Decade”

Public policies, such as social protection policy as a whole and health policy in particular, are heavily dependent, in their implementation, not only on the orientation resulting from the programmatic norms contained in the Constitution and the political decisions to implement this programme, but also, of course, on budget constraints, which are themselves largely dependent on the current state of the economy and the prospects for future economic growth. This conditioning of public policy by budget constraints is known, in legal-constitutional language, as ‘the reserve of the financially possible’. In this sense, the implementation of the constitutional programme aimed at the full realisation of social rights, such as the right to health, depends at all times on the state's ability to finance the expenditure involved without compromising its own future financial sustainability and, ultimately, the growth of the economy. Every policy decision involves two types of cost: the accounting or financial cost corresponding to the amounts needed to realise it and an economic cost, usually referred to as the ‘opportunity cost’. Thus, any policy option, within a framework of limited resources (such as economic resources), involves the cost of having to forgo other spending measures in other areas, or else the need to expand the resources needed to implement it, and this will also involve a cost, both now and in the future, for those who have to provide those resources (e.g. taxpayers).

According to the Portuguese Public Finance Council (CFP) report published in 2023 on the Health Sector for the year 2022, expenditure on the National Health Service (NHS) totalled 13168 M€, representing 5.5% of GDP and 12.3% of total public expenditure. It therefore already has a significant weight in terms of both the wealth generated by the country and state spending. Any decision to further expand spending on health, and especially on the NHS, could therefore mean, especially in a context of weak economic growth, having to give up some public spending in other sectors or the need to increase tax revenue. This is so assuming the budget constraint of a progressively lower weight of public debt in GDP remains active over the next few years. On the other hand, to the extent that it is necessary to increase public spending in other areas, this could also limit the margin for growth or even imply some reduction in spending on health. Today, there are various new pressures on public spending, first and foremost those related to tackling climate change and the energy transition, which will require a great deal of private investment, but also public investment, both in decarbonisation and in preventing and mitigating extreme climatic phenomena, such as, in Portugal's case, the risk of drought in the southern interior and flooding in certain areas of the coast. In addition, as a result of NATO obligations, there is a need to increase spending on national defence (in Portugal's case, increasing the weight of this spending from 1.4% of GDP to 2%), a need that has become imperative in view of the new geopolitical framework in Europe and the world.   

Spending on social protection, and especially on health, has important positive externalities, starting with economic growth. It's intuitive to think that a population with a good general state of health is a more productive population, not least because it has lower levels of absenteeism from work. For their part, various studies in the field of health economics, carried out over the years, show a positive correlation between economic development and health care, which legitimises the idea that either economic development favours good health care or the other way around, i.e. that good health care promotes economic development. 

The ageing of the population is very much associated with the idea of loss of health or deterioration in quality of life, and this jeopardises economic growth itself. As stated in the CFP's 2023 Report on Fiscal Risks and Public Finance Sustainability, ‘the population ageing affects economic growth directly, through the impact on employment resulting from the expected decrease in the labour force, and also indirectly, through changes in savings and investment patterns, with an impact on consumption decisions and the capital stock’ (CFP, 2023). In fact, the CFP's recent projections for the Portuguese economy, covering the period 2023-2037 (fifteen years), estimate that it will grow by an average of 1.2% a year (which, let's face it, is not very promising). In terms of composition, economic growth should, as in historical terms, be based on a significant contribution from total factor productivity, which should average 0.9 p.p., and a smaller contribution from the capital factor, around 0.4 p.p. on average. On the other hand, over the same period, employment is expected to make a negative contribution (-0.1 p.p.), mainly reflecting the deterioration in the demographic outlook (CFP, 2023, p. 13). In other words, as a result of ageing, the contribution made by the labour factor to long-term growth becomes negative, due to the reduction in the productivity of this factor. 

It is possible and desirable to anticipate and minimise the negative impact on economic growth associated with an ageing population, starting with the implementation of multisectoral preventive action strategies aimed at promoting healthy and active ageing, by making the most of workers' remaining productive capacities. In the area of health, investing in preventive medicine, along with health literacy from an early age, will contribute to this goal of healthy and active ageing. In addition to health and education policies, there are also labour policies that continuously value work in terms of remuneration and more, as well as policies that promote the physical and mental health of workers and the reconciliation of professional and personal life, in short, promoting a healthy balance between work and leisure.  

Among healthcare, the area of long-term care for the third and fourth ages is perhaps the most challenging in the next decade. I would go so far as to say that the ‘elephant in the room’ of the health system as a whole, and of the NHS in particular, is long-term care. 

According to the European Commission, EC (in the Ageing Report - AgR of 2024), Portugal is at the top of the countries with the highest dependency ratio today and projected for the coming decades (36.1% EU, against 41% PT; it is estimated that by 2045, the gap will widen to 52.8% in the EU, against 65.9% PT). For the purposes of ‘long-term care’ - LTC, the EC uses a metric to define the dependency ratio, which allows it to be defined as ‘long-term limitation in performing activities, self-perceived as severe, due to health problems (for a period of not less than 6 months)’. This dependence is a natural function of age. On the other hand, Portugal is at the bottom of the list (second only to Greece) when it comes to covering its dependent population with long-term care, either at home or in an institutional setting (less than 5% in total, compared to around 30% in the EU average). 

On the other hand, the long-term projection contained in the same AgR for the public spending on formal care evolution (either at home or in institutions) shows that Portugal is currently also well below the EU average in this public spending - 0.5% of GDP compared to 1.7% - and to a large extent this is due to the fact that we have very low coverage compared to what our dependent population needs. If the projection is based on a no-policy change (i.e. nothing changing in terms of this level of coverage), we can expect an increase of 0.1 p.p. of GDP in LTC spending in 2030 and 0.4 p.p. in 2070, which doesn't seem worrying. It should be noted, however, that if we already had the same coverage rate in PT as the EU average (i.e. around 30% instead of less than 5%), we would certainly be above the EU average in terms of public spending on LTC, i.e. above 1.7% of GDP in public spending on this type of care. In fact, the alternative scenario presented by the EC as a hypothesis for policy change, consisting of increasing our level of coverage to levels identical to those of the EU average, would imply an increase of three tenths of GDP in 2030 and an almost astronomical growth of 8.5 p.p. at the end of the horizon, i.e. we would go from the current weight of 0.5% of GDP to 9% of GDP in public spending on LTC, a brutal change of over 1800%!

However, there is already today, I believe, a slice of public spending on long-term care that doesn't appear in these figures now shown in the AgR, that is, in this figure of 0.5% of GDP of our public spending on LTC. This is care that ends up being provided inappropriately in hospital, due to a lack of response capacity or coverage by the National Network of Integrated Continuing Care (RNCCI), and ends up costing more than it would in this environment of formal carers. The 8th Barometer of Social Hospital Admissions by the Portuguese Association of Hospital Administrators showed that, on 20 March, NHS hospitals had admitted 2,164 people inappropriately, a figure corresponding to 11% of all admissions. At national level, the barometer says, the lack of response from the National Network for Integrated Continuing Care (RNCCI) was responsible for 44% of inappropriate hospitalisations - as in the previous year - followed by the wait for a response in a residential facility for the elderly, responsible for 30%.  And this with annual costs of around 300M€, certainly higher than if this care were provided in the network itself, which is not at all insignificant.

The area of long-term care, which has hitherto received a lack of attention from the public authorities due to the huge budgetary risk it entails, must therefore be given a new look and consideration. The approach should be based on four fundamental axes: i) forecasting; ii) planning; iii) reinforcing; iv) financing.

So, firstly, forecasting. In other words, in the field of macroeconomic and budgetary forecasts, it will be necessary to estimate - according to models appropriate to the Portuguese demographic, social and economic reality - the real medium and long-term impacts that strengthening this sector of long-term care, for example by increasing the level of coverage to levels similar to those in the EU, could have on public accounts and on the financial sustainability of the health system itself.  

Secondly, to plan, and to plan in the medium term, i.e. to develop instruments and a modus operandi on both a macro scale (the definition of long-term care policy) and a micro scale (the management of the integrated care units themselves) that make it possible to anticipate needs, identify priorities in terms of current expenditure and investment, carry out financial and budgetary programming, manage by objectives, cost by activities. 

Thirdly, strengthening. The need for reinforcement has already been recognised in the Recovery and Resilience Plan, which includes a line of funding for new investments in both the RNCCI and the RNCP. In addition to these investments, which are undoubtedly necessary to increase the number of beds and therefore the response capacity of these two networks, there are two areas where this reinforcement (and the planning of this reinforcement) seems to be more urgently justified: on the one hand, the area of human resources; on the other, the area of digital resources. With regard to the former, prioritising the training of resources in the field of gerontology and social care taking. With regard to the second, the development of digital tools for providing this care, such as remote medicine, robotisation and artificial intelligence, tools that will increasingly play a complementary role to conventional medical and social care and may even replace it in some cases. 

Fourthly and lastly, but no less importantly, it will have to be financed. Let's not be under any illusions: extending the provision of long-term care in line with the growing needs of our ageing population will have a financial cost and an opportunity cost. The effort required will increase as a percentage of GDP, and may have to imply suppressing or reducing spending in other areas of public policy, unless long-term economic growth is strong, necessarily higher than the 1.2% per year on average projected by the CFP and noted earlier. How to finance this increased need for expenditure is the next question. Should we maintain exclusive funding through transfers from the State Budget (SB) to the NHS (i.e. tax funding) or is there a case for diversifying the sources of funding? In my opinion, this diversification should at least be studied. Other sources of funding, such as compulsory social insurance or private insurance, health plans to cover long-term care - in short, funding instruments based on the cost of the eventuality - should be considered, at least to complement exclusive tax funding. 

In fact, in my opinion, if it is justified to look at diversifying funding sources in the public health system as a whole, it is even more justified in the particular case of long-term care. Firstly, because this is long-term care: because it can be subject to long periods of formation, as is the case with pension plans, and because it can also be provided and paid for long periods of time. In other words, the financing of this care can be planned and formed over time, including on the basis of a capitalisation model. Secondly, because long-term care is a multi-sectoral area that crosses health and social security. In the latter, contributory funding inspired by the social insurance model prevails. Secondly, because long-term care is also a decentralised area, insofar as the provision of this care, in many cases, is not done directly by the state, but under cooperation contracts, by the social and private sectors, due to the application of the principle of social subsidiarity (laid down in the Social Security Framework Law). For these reasons, it is an area that is already more prone to competition between providers and the possibility of choosing these providers, and it is more prone to the logic of cost-effective financing. What's more, this area of healthcare, being one of the most recent in its implementation, is, as we have seen, one of the most pressurised in terms of growth in the respective expenditure, due to demographic ageing. As it is a relatively new area, but also an area subject to great financial pressure, it is therefore more predisposed to accommodating new funding solutions. In other words, the idea of diversifying funding sources, especially in the area of long-term care, must be considered, because it is a question of thinking about the long term and the future financial sustainability of the health system in general and the NHS in particular.

I conclude by recognising that some of these ideas may seem eccentric given the current status quo in terms of financing the NHS and the RNCCI in particular. But the situation of the system makes it necessary to think ‘outside the box’ and look for new solutions as far as is reasonable. In fact, the current situation is complex and demanding and we must realistically recognise the budget constraints facing the system and the country. At a time of accelerated ageing, marked by climate changes, technological revolution, and a modification in the labour and professional structure of our society, the risk of ‘disease’ is increasing and its manifestations are changing, testing the capacity of the NHS and the system as a whole to deal with it in the medium and long term. We therefore need to reflect deeply on the forms and models of healthcare provision and financing, with a view to better risk management, promoting the sustainability of the system and safeguarding social justice. The area of long-term care, due to its particular characteristics, is at the forefront of this reflection.

Date of last update: 01/06/2024