Tuesday 21 October 2014

Brendan Keenan: Health service's grim status may hit us in the bond markets

Published 19/12/2013 | 02:30

Minister for Health James Reilly
Minister for Health James Reilly

THIS is not what you want to happen, three days after "celebrating" the exit from the bailout. It may seem a long way from medical cards for those with disability, to the sovereign debt trading desks in London and New York, but the two are now intimately, dangerously, connected.

The immediate issue is, of course, the finances of the health service, and the impact that will have on patients.

Beyond that, however, is the impact on taxpayers, on economic growth, and on Ireland's credibility in the bond markets to which it has just returned. All three are threatened by the intractable problems in the health service.

Those problems were already making the 2014 Budget, announced only this month, look decidedly shaky. Yesterday's statement from the Health Service Executive seems to confirm the widespread suspicion that the HSE will not be able to meet its targets and that, as a result, the Government will not meet its budgetary targets, unless it takes action elsewhere.

That is not yet the official line. The health service is still meant to find these enormous savings itself. It is already behind what should have been done, with €150m supposed to be saved this year now on the books for next year.

The original objective was to reduce health spending by €260m in 2014. After that, spending was to remain steady in money terms. But the backlog and the inherent automatic rises in health expenditure mean €620m must be cut from 2014 health budgets in order to get that net reduction.

There was a certain amount of relief that the 2014 operational savings had been reduced by €45m to €620m. But the "loss" from the abortive trawl through medical cards amounts to almost €90m. A simple calculation shows that the service itself will have to find more cuts of almost €50m as compared with the Budget arithmetic.

A HSE statement assured us that, after "working closely with the Minister for Health and his department", this money will now come from other sources. The difficulty with the whole package is that an awful lot is coming from other sources.

It is not yet known where over €100m in pay costs will be found. The numbers employed in the HSE are meant to fall by 1,000 and the pay bill by €270m. The HSE believes it can get €140m in savings under the Haddington Road Agreement, and €20m from "employment control".

Many will be sceptical about that, never mind €108m for which no ideas have yet emerged. All of this is despite a €190m transfer to the HSE from the Exchequer next year to ease the pressures. It casts an unflattering light on the process of budgetary adjustment. It is worth remembering that the 2014 Budget adjustment was reduced -- in headline terms anyway -- from €3bn to €2.5bn, after much political argument in the Coalition.

It is becoming clear that the Government did not really know how to achieve even that smaller adjustment, especially in health. The figures, especially the medical card savings, were made to fit the final deficit of 4.8pc of economic output (GDP), but in many cases the facts do not yet fit the figures.

This is what will alarm them on the bond trading desks and in the ratings agencies where the Government is desperately hoping Moody's will upgrade national debt from "junk" status.

It also alarmed the troika, which kept returning to health spending as the major threat to the public finances. They felt not enough had been done about the cost of drugs, higher medical salaries and the structure of the hospital service.

Health budgets are a problem for all advanced economies, but they seem particularly acute in Ireland. Spending per person is well up to international levels, but the people in question are younger than average while the quality of service is below average, and in some cases little short of appalling.

The service is going to get worse in 2014. Hospitals will have to save €250m and there will be another hit to primary care. This is central to creating a more cost-effective service, but it has been targeted as the lowest of low-hanging fruit in the cutbacks.

The €40m allocated for free GP care to children under six, irrespective of means or needs, will come up again as stories inevitably emerge about reductions for those in need and short of means. There were the expected complaints about the "austerity" this will inflict on patients. But, given the state of the public finances, leaving things as they are is not an option.

The appalling political vista of radical reform -- closure of hospitals, compulsory redundancy, universal insurance, or universal free care -- means little has been done about anything. The system remains incapable even of maintaining existing services without large annual increases in expenditure.

The economic plan published on Tuesday envisages a €2bn correction in next December's Budget, followed by only minor adjustments thereafter. The Economic and Social Research Institute endorsed the good growth figures in the plan.

As things stand, most of those gains could be swallowed by the health service, with little obvious benefit to show from it. If the gains do not materialise, the bond traders may have the final say.

Irish Independent

Read More

Don't Miss

Editor's Choice