Public Sector Spending Efficiency in Estonia

Abstract

The Estonian fiscal position is much better than in many OECD countries, the country stands out for having a rather lean government sector and the authorities are striving for efficient use of existing resources. Both healthcare and local government were particularly hit the by the decrease of resources as a result of the unprecedented GDP fall during the downturn. As a return to high revenue buoyancy will not be immediate, there are challenges for delivering the same with less money but it is also an opportunity to reconsider provision of public services. The healthcare sector is state dominated and offers some scope for efficiency improvements. On the supply side, further streamlining of the existing hospital network, emphasising primary care, and keeping an eye on the standard of quality of care, would be helpful. A number of market signals are already in place on the demand side, such as fees and drug co-payments. Yet these raise issues of accessibility of healthcare, in particular for financially distressed households. A cap on out-of-pocket spending together with active promotion of least expensive drugs use would help to address this issue. Local government seems rather extensive and fragmented for such a small country. Exploiting economies of scale, either by merging or requiring deeper cooperation , should bring gains in terms of public service efficiency. Offering greater scope for tax raising at the local level can incentivise the municipalities to adopt more growth-oriented economic policies. This working Paper relates to the 2010 Economic Survey of Estonia (www.oecd.org/eco/surveys/estonia).

Health care coverage in OECD countries in 2012

“…= not available Source: OECD Health system characteristics Survey 2012, Smidova (2011), Krutilova (2013, Swedish TLV website consulted on July 5, 2014.…”

Reducing Poverty in Estonia Through Activation and Better Targeting

“…In reforming the system, the limited human and material resources of the municipalities need to be recognised (Box 3), and incentives need to be put in place to encourage enough cooperation among municipalities as well as other institutions to provide efficient services provision, including through experimentation with multi-service cooperation over a broad territorial area, even while more fundamental sub-national administrative reform is politically difficult to implement (OECD, 2011c). Establishing national minimum service standards would also be important to ensure both more equal access and the quality of social services (NAO, 2010a), and should be underpinned by some adjustments to the equalisation grant and block grant system (Smidova, 2011).…”

“…Estonia's spending on healthcare, at 6.7% of GDP, was well below the OECD average of 9.6% in 2009. There is scope for a more efficient use of limited resources (Smidova, 2011). Expenditure was reduced in the crisis, and while the total number of cases was not reduced, waiting times doubled, co-payments were increased, dental care compensation was abolished and the quality of services has probably suffered.…”

“…The number of county hospitals remains high, considering the increased usage of regional and central hospitals by the rural population, and ensuring consistent resources and quality among local hospitals remains an important challenge. Converting some of the county hospitals into out-patient facilities therefore seems to be warranted (Smidova, 2011). EU structural funds in the new financial perspective 2014-20 could be used to support the reorganization process.…”

“…Low-income households face problems in accessing appropriate healthcare because of relatively high out-of-pocket payments (Smidova, 2011). While the share of such payments in total health spending is at the OECD average, the share of copayment for pharmaceuticals is particularly high, with households covering around 60% of costs compared with less than 20% in some countries (Figure 24).…”