Health and Social Care: medium term financial framework

Future Demand for Health and Social Care

Drivers of Demand Growth

There are numerous studies which consider the factors driving expenditure on health and social care. Many of these studies have attempted to quantify future demand based on forward projections of need, including analysis carried out by the Health Foundation, the Fraser of Allander Institute, as well as the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD). Most of these studies conclude that the demand for health and social care will increase faster than the rate of growth of the wider economy and that over time, the share of GDP spent on these services will gradually increase. The factors for this growth can be broadly classified into three areas:

Price Effects: the general price inflation within health and social services;

Demographic Change: this includes the effect of population growth on the demand for health and social care services as well as the impact of a population living longer; and

Non Demographic Growth: this relates to demand-led growth, generated by increased public expectations and advances in new technology or service developments, for example, expenditure on new drugs.

In May 2018, the Institute for Fiscal Studies and the Health Foundation reported that UK spending on healthcare would require to increase in real terms by an average of 3.3% per year over the next 15 years in order to maintain NHS provision at current levels, and that social care funding would require to increase by 3.9% per year to meet the needs of a population living longer and an increasing number of younger adults living with disabilities.

Our analysis and assumptions are in line with these assessments and take into account the Scottish Government’s twin approach of investment and reform, recognising the increasing demand and expectations placed upon our frontline services and being clear that the status quo is not an option.

Future demand forecasts therefore assume the following rates of growth and reform for health services in Scotland:

• price effects will move in line with UK Government GDP deflator projections and will reflect the impact of the NHS pay deal^[11] (combined impact of 2.2-2.4% each year over the next five years);
• demographic factors will on average increase the demand for healthcare by 1% year on year;
• non-demographic growth will contribute 2-2.5% growth year on year within the healthcare sector; and
• benefits realised from savings and reform will amount to 1.3% each year and will be retained locally.

Based on these assumptions and their interaction with variable and fixed costs, future demand projections for health have been based on an annual growth rate of 3.5%

Taking into consideration the various estimates of social care growth, pressures in the social care sector are likely to be slightly higher than in healthcare for various reasons, including pay a strong focus on the very elderly, where demographic pressures are at their greatest. For the purposes of modelling, a rate of 4.0% has been used.

Summary

National and international studies point to the fact that health and social care demand will continue to grow in Scotland, as is the case throughout the developed world. While recognising the significant additional investment planned in health and social care, if the system does not adapt or change, then there will be a net increase of £1.8 billion over the period - driven by growth in the population, public demand and price pressures. In the following sections, the policies and measures in place to address this challenge are set out, including how they will influence the future shape of health and social care expenditure.