The cost of maintaining the existing range of health services for the State’s ageing population is forecast to increase by almost twice as much previously thought, with an extra €324 million expected to be needed next year, a Government review has found.
Figures in the review, to be published today by Minister for Public Expenditure and Reform Michael McGrath, suggest that extra provision may have to be made in the budget to cope with the demographic change.
The forecast of €324 million extra being required to treat Ireland’s growing cohort of older people next year is almost double an estimate of €175 million included in a similar review carried out in 2019.
The paper says the cost will increase to €385 million in 2025, significantly above the previous estimate of €186 million for the years 2023 to 2026.
The review examined the impact of demographic change on health expenditure between 2022 and 2025. It seeks to estimate the additional funding needed to maintain existing levels of service, only taking changes in demography into account.
The estimates contained in the analysis do not include how much dealing with related pay increases will cost – rather focusing on continuing to provide the same level and types of service.
Age-specific data
The paper outlines how the main reason for the increased estimates is the inclusion of more age-specific data, and expanding the range of services being included in the Government modelling.
The work was carried out by the Irish Government Economic and Evaluation Service, which runs the rule over State spending and carries out policy analysis.
Previous analyses were thought to be underestimates as there the age-specific data available on spending in the Irish health system is limited.
The latest estimates draw on a range of joint research published by the Economic and Social Research Institute and the Department of Health.
However, even this is limited, with the authors pointing out that the implementation of a system of unique health identifiers could improve the accuracy of future estimates.
Another spending review to be published by the department notes recent international evidence indicates that the political costs of pension reforms are not as insurmountable as thought previously. It points to academic literature suggesting that a willingness to implement pension reforms is often held back, primarily due to older voters being a powerful cohort at election times.
The review focuses on challenges and strategies for reforming publicly-funded pensions systems, arguing that there are “various policy levers” that can be utilised to ensure the pension systems are financially sustainable, including increasing employment pension contributions or subsidies from general tax revenues.
It found, however, that many countries were slow to implement sufficient reforms despite an “emerging consensus on the need for reducing public expenditure on pensions”.
Research from the 1980s on has found that this is “primarily due to the emergence of a self-interested ‘grey vote’. However, in the last 30 years, most highly developed countries have implemented at least one substantial reform that reduces expenditure on public pensions.
“This suggests that the political costs of pension reforms are not insurmountable,” the paper states. “It is now recognised that it is possible to implement expenditure-reducing pension reforms, and a number of strategies have been identified to overcome the difficulties that remain.”
It outlines how academic papers suggest phased reforms, providing more options and incentives, improving the public’s understanding of pension systems and developing a broad political consensus can all assist the passage of reforms.
The review also points to research that suggests some offsetting measures, and one paper that suggests “obfuscation and creating division” as a strategy - adding that the inclusion of these options as being identified by research “should not be interpreted as a recommendation from the authors”.
