The Swedish welfare state is one of the most generous and comprehensive in the developed world. For Swedes it is deeply entrenched as a reflection of egalitarian values. The fact that Sweden scores high on many indicators of trust and social cohesion is often linked to the general principle of universal access to social programs, in contrast to the more selective principles of access applied in many other countries.
Accordingly, the future financial sustainability of the welfare state in general and health care in particular is crucial to Swedish society. Several projections of future demographic developments indicate that the present organization, financing and functioning of the Swedish health care system will require a substantial increase in taxes. Will the aging population create financial strains that ultimately make it necessary to abandon universal access to health care?
So far the political answer to such projections has consisted of proposals to increase employment, lower the average age at which working life begins, postpone retirement or raise efficiency in the provision of public services. High employment has always been a priority in Swedish economic policy. The current intense debate about retirement age will probably lead to legislation delaying retirement. Over the last two decades major efforts to make service delivery more efficient have been undertaken, especially at the local government level. (1)
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But so far the principle of financing social programs through general tax revenue and providing equal access to services for all has not been challenged, and polls show that it would be politically dangerous for any politician to do so. Support for the principle is especially strong in the case of health care. According to several polls, a large majority are prepared to pay higher taxes if necessary to maintain the standards and principles of health care provision. The problem is that the same majority would probably adjust their employment and working hours, their tax compliance and their willingness to invest in skills training in response to higher taxes.
Over the last two decades the Swedish welfare state has changed. The picture of a generous, even overly generous, cradle-to-grave system does not hold as true today. There are, for example, much tighter eligibility rules in sickness and unemployment insurance. These changes have mostly concerned cash transfer programs, not services such as health and education (figure 1).
In some areas the quality of services may have deteriorated since 1993. But in health care almost every quality indicator shows improvement. Despite these improvements and an aging population, health care requires the same share of GDP as in 1980. This has led many politicians to conclude that there is no financing problem provided Sweden can keep present tax levels. This conclusion is wrong, as I will explain.
Health care financing today
In Sweden, as in other countries, health care is one of the biggest financial responsibilities of government. Table 1 shows the sources of health care financing.
The Swedish health care system combines integration and decentralization. The 21 directly elected county councils are responsible for primary and specialized health care. Traditionally, most health care services are provided by the county councils, which work much like American HMOs or the health regions established by the larger Canadian provinces. This structure is gradually changing. An increasing share of health care is provided by private companies, but financed by the county councils. Today, private operators produce 30 per cent of primary care and 7 per cent of specialized health care. Patients have been given greater freedom of choice of health care providers and are less restricted to their own county council.
The 390 municipalities are responsible for primary health care for the elderly and home care. They are also responsible for long-term care of the elderly and people with disabilities, which is not classified as health care.
The county council tax is a flat-rate income tax, at present 11 per cent of taxable income; 90 per cent goes to health care. The municipality tax is currently 21 per cent of taxable income; 6 per cent of the municipalities' tax revenues are for health care.
The private out-of-pocket contribution to health care financing is 17 per cent, a share that has been fairly stable. But this figure is based on the national accounts where health care is broadly defined and includes nonprescription pharmaceuticals, medical appliances (like eyeglasses) and some services not normally associated with health care. With a narrow definition (primary and specialized care including prescription pharmaceuticals), private funding is estimated at 9 per cent. As in most countries, expenditures for dental care are largely paid by individuals, except for children and the elderly. Private funding covers 60 per cent of total expenditures for dental care.
Swedes incur a smaller financial burden than people in many other countries. As can be seen in figure 2, on a purchasing power parity (PPP) basis, Sweden ranks 12th among OECD countries in terms of total health care expenditure per capita and 13th in terms of share of GDP. Among the Nordic countries, all with similar health care models, Sweden spends less per capita than Norway (the most expensive country after the United States) and Denmark (whose spending is very close to Canada's), but more than Finland.
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The public share of total health care expenditure (with the broad definition in national accounts) is high, but not the highest among OECD countries. As a share of GDP, public health care expenditure is actually higher in the United States than in Sweden. (Public expenditure is substantially higher in the United States when health-related tax deductions are taken into account.)
Health care and elderly care are to some extent communicating vessels. Deficiencies in health care imply higher expenditures for elderly care and vice versa. In Sweden, long-term care (which covers elderly care) is a public undertaking to a much larger extent than in most other countries. Among the European Union countries public expenditure for long-term care, measured as a share of GDP, is higher only in Denmark.