Introduction by Croakey: If the upcoming Federal Budget does not include significant new investments in health, then many important health programs – including for Aboriginal and Torres Strait Islander people – will be significantly under-funded.
That’s according to the analysis below by Charles Maskell Knight PSM, health policy analyst and formerly a senior public servant in the Federal Department of Health.
If the status quo continues, areas projected to experience funding reductions in real terms, after adjusting for price and population growth, include the “health services” and “administration” functions, which between them include primary healthcare, health workforce measures, and rural health initiatives; and population health, medical research, mental health, blood and blood products, other allied health services, and health infrastructure.
In the absence of policy change, Australians can also expect continuing increasing out-of-pocket costs when seeing medical specialists.
Stay tuned for Maskell-Knight’s post-budget analysis on whether the Government moves to address these areas of concern.
Charles Maskell-Knight writes:
The Budget season is upon us. The budget tree is in full autumn glory, and pre-budget teasers are being revealed by usually tight-lipped Ministers.
Before the Budget emerges and the Government spin machine goes into overdrive with claims of “record investment” and “once in a generation reform”, it is worth looking at what would happen to future health spending levels if the Government did nothing.
What should growth in spending look like?
The 2023 Budget estimates of consumer price index growth compound to eight percent over the three years to 2026-27, meaning programs with an increase in spending under eight percent are going backwards in real terms.
The eligible population group for most health programs, with the exception of veterans’ health services, will broadly grow in line with overall population growth.
While the Budget does not contain forward estimates of population growth, the Population Statement 2023 released by the Government’s Centre for Population states that growth is expected to “gradually ease” from 1.9 percent in 2023-24 to 1.2 percent in 2033-34.
On this basis, a conservative estimate of growth over the next three years would be about five percent.
Combine this with estimated price growth of eight percent, and health programs need to grow by at least 13.4 percent if per capita real spending is to be maintained.
However, this estimate does not include an allowance for the impact of population ageing on demand for services, which is particularly important for spending on public hospitals and aged care.
Growth in health and aged care spending
Budget Paper 1 every year includes a statement of expenditure by function (that is, purpose, not portfolio) and sub-function. The following table for health and aged care is drawn from the data in last year’s Budget.
Implications
The obvious conclusion is that only three programs (MBS, public hospital funding, and aged care) are growing at more than the 13.4 percent needed to keep pace with inflation and population growth.
The margin between forecast growth (from 18.4 percent to 22.0 percent) and the 13.4 percent benchmark is probably a fair allowance for the impact of ageing on these programs. (The number of people in the over 80-year-old age group actually using expensive residential care services is growing considerably faster than the general population.)
In other words, forecast spending probably allows existing service levels to be maintained.
But it won’t be enough to address the historically low level of government support for specialist consultations, where the MBS now covers only half of the average fee charged.
The low level of growth for the private health insurance rebate presumably reflects a bearish view of long-term trends in participation growth.
The flat-lining of PBS estimates is due to two factors: the price reduction mechanism in the PBS; and the decision that a listing a new drug on the PBS is a new policy decision, which should only be reflected in the estimates once the decision is made.
The 2023-24 MYEFO statement reported post-Budget decisions on new PBS listings totalling just under $3.5 billion across the four years 2023-24 to 2026-27.
The paltry growth in estimates of spending on First Nations health programs is due to the fact that many programs receive funding for a fixed number of years, after which a new policy decision is required to re-authorise the program.
Sooner or later a government may accept that Closing the Gap requires sustained ongoing growth in First Nations health program funding to keep up with prices and population growth. Let’s hope it’s this Government, and the 2024 Budget that marks the watershed.
There are two functions where expenditure in nominal terms is expected to decrease sharply: Administration, and Health services.
The Administration function includes funding for primary healthcare and coordination, investment in health workforce measures, and support for rural health initiatives, as well as the Government’s general administrative costs associated with healthcare.
Health services includes funding for population health, medical research, mental health, blood and blood products, other allied health services, and health infrastructure.
The initial decline in both functions in 2024-25 is due to the final wind-down of specific COVID-19 measures.
Beyond that, however, there is no obvious reason for the absence of growth other than the termination of what should be ongoing programs.
Given the many problems in access to mental health and allied health services, a function that includes programs in these areas should be growing strongly – not holding steady in nominal terms.
From the 2024-25 base level of funding for Health services of $11.8 billion, price and population growth would require spending of $12.3 billion in 2025-6 and $12.8 billion in 2026-27 – not the $11.2 billion included in the forward estimates.
Budget coverage
Following the Budget I will prepare an updated version of the table above, and identify the extent to which decisions in the Budget have provided enough funding to allow health programs to grow with prices and population.
After the Budget is released, I suggest Croakey readers ignore the spin in Ministerial and Departmental press releases and instead look at the expenditure trends in Budget Statement 6 (in Budget Paper 1); and the measures descriptions in Budget Paper 2, which present a more dispassionate account of what has been decided.
• Charles Maskell-Knight PSM was a senior public servant in the Commonwealth Department of Health for over 25 years before retiring in 2021. He worked as a senior adviser to the Aged Care Royal Commission in 2019-20. He is a member of Croakey Health Media. Follow on X/Twitter at @CharlesAndrewMK.
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