This week the Australian Institute of Health and Welfare released its Health expenditure Australia 2014–15 report.
This document contains a wealth of information about the way in which we allocate resources across our health system.
There are many interesting stories in this data which can help us understand how our health system works and what we can do to improve it.
In the piece below, Croakey moderator Jennifer Doggett identifies seven key points from the report that are relevant to current health policy issues.
Jennifer Doggett writes:
- We care about health care: The overall expenditure data shows that we spent $161.6 billion on health goods and services in 2014–15. This represents 10% of our GDP. Internationally this puts Australia as just over OECD median for health expenditure (as a percentage of GDP).We don’t have a mechanism for assessing whether this level of expenditure reflects the priorities of the Australian community so it is impossible to know whether or not current expenditure levels are in line with community expectations.
But it’s fair to say that anything we spend 10% of our collective resources on represents a high priority for our community and, given this, it is important to make sure we are allocating these resources to achieve the best possible outcomes.
- There is no spending crisis: While governments like to talk about a ‘crisis’ in health spending, the data shows that we are easily managing the growth in health spending.The $161.6 billion that we spent in 2014-15 is $4.4 billion (2.8%) higher than in the previous year. This is a relatively small increase and the third consecutive year that growth was below the 10-year average of 4.6%. In fact, the ratio of government health expenditure to tax revenue remained relatively stable over the 3 years to 2014–15, increasing only by 0.2 percentage points to 24.8%.
- “Private” health care is not really private. Governments are the source of funding for around 67% of the Australian health system (41% Commonwealth and 26% States and Territories) and this funding flows through to both public and private health services.Most “private” health services in our health system e.g. GPs, many allied health providers and private hospitals, receive substantial amounts of funding from public sources (including via Medicare and the private health insurance rebate).
Politicians and the media like to talk about a ‘public’ and a ‘private’ health system as though they were two separate entities. The funding data in the AIHW report demonstrates just how linked these two ‘systems’ are.
- Government spending growth on health is slowing. The AIHW report shows that total health spending by governments in 2014-15 ($108.2 billion) was 1.3% higher than in the previous year.However, this increase was less than one-third of the 10 year average annual increase of 4.3%. This drop in funding growth was mostly driven by a fall in state and territory government spending which declined in real terms for the first time in the decade (by 0.4% compared with average annual growth of 4.8% per year).
Given the relatively strong growth in state and territory tax revenue in 2014–15 (7.9% compared with an average annual growth of 5.6%), the is meant the ratio of health expenditure to tax revenue for state and territory governments fell by 1.4 percentage points (from 24.0% in 2013–14 to 22.6% in 2014–15). This is the third consecutive year this ratio has declined, and it occurred (to a varying extent) in all states and territories.
- Non-government sources of funding for health care are growing faster than government sources. Non-government sources make up around one-third (33%) of overall funding for health care. Growth in funding from non-government sources in 2014-15 was higher than for government, at 5.9%, and above the average annual growth over the decade of 5.4%.As non-government sources of funding are generally inherently less equitable than government sources (for example, in general people pay the same premiums for private health insurance and incur the same out-of-pocket costs, regardless of their income) a shift towards non-government funding sources represents a shift from a more equitable to a less equitable funding system.
- Private health insurance is the fastest growing source of expenditure. Private health insurance expenditure grew by 6.8%, compared with 3.7% for individual out of pocket expenses and 2.8% for government funding.This is further evidence of the inability of private health insurance to contain health care costs. Without the price signals of individual payments or the negotiating power of Medicare, private health funds are passive price takers without the power to constrain price setting health care providers.
This means that the more we rely on private health insurance to fund health care the less able we will be to contain rising health care costs.
- Direct individual payments contribute more than twice as much as private health insurance to overall health funding. Individual out-of-pocket payments contributed 17.7% of total health care funding in 2014-15, more than double that of private health insurance which only contributed 8.7%.Individual direct payments for health services have a significant impact on consumers’ capacity to access health services and make a large contribution to the overall cost burden of their care. Despite this, they are largely ignored by governments and policy makers.
The result of this is an inefficient and inequitable system which does not support the provision of high quality care and leaves many consumers facing large and inequitable payments for essential services.