Health care financing and productivity of health care in OECD countries: a stochastic frontier analysis

Abstract

The effects of health-care expenditure on health outcomes and the efficiency of health-care financing schemes in the OECD are estimated with a panel of 30 countries over 1995–2019. The survival rate constructed from the data on age-standardized health-related mortality is used as the health outcome variable. The stochastic frontier model used in the study accommodates nonmonotonic relationships between the factors of interest and the outcome, allowing us to find the optimal levels of the factors. The marginal effect of per capita health-care expenditure on the maximum achievable survival rate diminishes as the level of spending increases and is no longer statistically positive after health-care spending reaches $4811 (2015 PPP). The optimal share of compulsory financing in health expenditure is between 55 and 65%, and health care systems where it exceeds 90% are significantly less efficient. Health-care systems where the percentage of private financing in health expenditure is below 18% are significantly less efficient than those where it is close to the optimal level of about 62%. Further research is needed to examine the effects on health-care efficiency of more specific characteristics of health-care systems taking into account their complex interactions.