Missing budgetary targets on healthcare spending could put pressure on Ireland’s long-term budget planning, a major report on the economic effects of the ageing population in Europe has said, writes Pádraig Hoare.
Moody’s Investors Service said that “healthcare more than pensions will be key fiscal challenge from population ageing” and that repeated budgetary adjustments to make up for rising healthcare costs would prove difficult for the Government in the future.
“In Ireland, the Government has repeatedly missed its budgetary targets for the health sector and was forced to provide supplementary budget funding. While the Government was easily able to accommodate such overruns given underspending in other areas, the repeated budget overruns clearly illustrate the budget and cost control challenges,” the report said.
Similarly, Moody’s said, the UK government had to accommodate higher spending by the National Health Service (NHS) in the past two years despite its budget being been ringfenced.
The report added: “Like Ireland, the [UK] government was able to accommodate higher spending within current budget allocations and by allowing the NHS to switch funding from capital to current spending.
"But the system remains under pressure, and according to the Office for Budget Responsibility (OBR) the healthcare sector is the key longer-term risk to the UK’s fiscal sustainability.”
At least 20% of the population of most EU states will be over 65 by 2030, with the exception of Ireland and Luxembourg, the report said. Half of the EU countries will have a 20% population over 65 by 2020.
The credit impact could be particularly marked for countries combining high healthcare costs with already high spending and public debt levels today, Moody’s said. Co-author of the report, Kathrin Muehlbronner said:
“How well governments adapt their health care systems to their ageing populations will increasingly become an important aspect of our assessment of fiscal strength, and ultimately sovereign credit profiles.”
Portugal, Malta, Slovakia and Croatia will see the most rapid increases in healthcare costs, according to projections.