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New report undermines Federal Government claims about a crisis in health system sustainability

“Health spending growth slowest since the 1980s” says the headline on a media release issued by the Australian Institute of Health and Welfare today about a new report, Health expenditure Australia 2012-13.

The report shows total spending on health goods and services in Australia was estimated at $147.4 billion in 2012-13 (9.67% of GDP). This was just 1.5% higher than in 2011-12.

“This is the lowest growth the AIHW has recorded since it began the Health expenditure Australia series in the mid-1980s, and more than three times lower than the average growth over the last decade (5.1%),” said AIHW Director and CEO David Kalisch.

In the article below, a senior health policy analyst and regular Croakey contributor, who writes under the pen-name of “William Foggin”, says the report suggests the Government’s much-promoted concerns about Medicare being “unsustainable” are an “ideological confection” – just like the “budget emergency”.

***

Crisis? What crisis?

“William Foggin” writes:

When I worked as a wage slave in the Commonwealth bureaucracy, the annual release of the AIHW’s Health Expenditure Bulletin was something of an event.

The data would be pored over and summarised for presentation to the Minister, question time briefings would be updated, and standard words reshaped as required.

I presume this still goes on.  The problem bureaucrats will face this year is that the data are not consistent with the Commonwealth government’s preferred narrative about health expenditure, which goes something like:

  • health expenditure is unsustainable; and
  • the Commonwealth government cannot afford to continue to fund existing policy; therefore
  • states needs to spend more; and
  • individuals needs to spend more.

So what has the Institute found in its latest report? Briefly:

  • health expenditure per capita is stable;
  • the Commonwealth ratio of health expenditure to tax ratio is falling;
  • states’ share of hospital spending is rising; and
  • individuals are spending more.

And all this before any of the 2014-15 budget changes.

Total health expenditure in 2012-13 was 1.5% higher in real terms than the previous year: “the lowest growth that the AIHW has recorded since the mid 1980s, when [it] first began the Health expenditure Australia series” (p5).

Total Government funding fell in real terms by 0.9%, largely because Commonwealth expenditure fell by a real 2.4% (p19).  (Commonwealth expenditure actually fell slightly in nominal terms – although there are once-off factors driving this, which I will discuss later).  Although State government spending grew by 1.4% in real terms, this was much lower than the long-term trend of 5.6%.

At the same time total non-government spending in 2012-13 grew by 7.2% in real terms.  Individual out-of-pocket payments on a per capita basis increased by 4.6% in real terms (p54).

So if individuals are paying more and governments less, why do we need to transfer more of the burden to individuals through higher co-payments?

Anyway, as a result of all this, the Commonwealth government’s share of total health spending fell from 43.0% in 2011-12 to 41.4% in 2012-13, while non-government’s share rose from 30% to 31.6%.  The states’ share remained unchanged (p36).

The reduction in Commonwealth spending was partly due to prepayments of private health insurance premiums in 2011-12 by policy holders who were about to be means-tested out of the rebate, and hence would not receive a benefit in future years; and partly due to the termination in December 2012 of the $1 billion a year and growing Chronic Disease Dental Scheme, which was replaced from 1 January 2014 by the $600m a year Child Dental Benefits Schedule.

As a result, from 2011-12 to 2012-13 expenditure on the rebate and on dental services fell by $233m and $113m respectively (p77-8).   But even netting off these reductions, Commonwealth expenditure grew by less than 0.5% in nominal terms, and still went backwards in real terms.

More significantly, Commonwealth expenditure on the PBS declined between 2011-12 and 2012-13 by a nominal 1.6% or $130m – and there were no once-off policy changes driving this decline.  So what is the case for increased individual contributions to the cost of medicines?

While the nominal decline from 2011-12 to 2012-13 in total Commonwealth expenditure may not be replicable, the less than real growth may be if it is driven by factors such as systemic reductions in PBS spending.

One measure of sustainability is the ratio of health expenditure to taxation revenue.  For the Commonwealth, this ratio has continued to fall from the immediate post-GFC peak of 29% in 2009-10 to 25% (p15).  On this basis the Commonwealth is finding it easier than it used to be to fund health expenditure.  While the ratio has yet to reach the pre-GFC ratio of 21.5%, it is heading in the right direction.  Where was that sustainability crisis again?

Successive Treasury Intergenerational Reports have warned of the effect of the ageing population on health spending.  Yet in 2012-13 per capita spending on health declined marginally in real terms ( by $17 or 0.3%: p.19) – even while the population continued to age at the same rate.  Ageing crisis, anybody?

Given the Government’s decision to change public hospital funding arrangements from 2017-18 to revert to a (meanly) indexed block grant, it is interesting to observe what happened over the decade to 2012-13 under a more generously indexed block grant, with a once-off addition to the base in 2008.  In 2002-03 the Commonwealth’s share of public hospital funding was 44.2%.  By 2012-13 it had declined by 7.2 percentage points to 37.0%.  As long as the Commonwealth funds less than 50% of growth in costs its share will continue to decline. 

It is now received economic wisdom that the Government’s “budget emergency” is an ideological confection (see  http://www.theguardian.com/world/2014/sep/18/budget-emergency-denied-by-63-leading-australian-economists and http://www.smh.com.au/business/no-budget-emergency-say-economists-20140711-zt4kz.html).

Given this latest AIHW report, the “health sustainability crisis” must be put in the same category.

****

PS from Croakey

• At The Conversation, Professor Stephen Duckett, Director of the Grattan Institute’s Health Program, says the report “gives lie” to claims the health system is unsustainable.

 

 

Comments 9

  1. klewso says:

    You don’t really believe much of what Abbott says do you….?

  2. The Pav says:

    What a surprsie…The most dishonest govt imaginable is dishonest …and they want more powers!!!!!!!!!!!

  3. Scott says:

    Yes, because one year is a trend! Please.

    Disappointing analysis from Croakey. Don’t let your ideology get in the way of quality reporting.

  4. Ron Batagol says:

    Hang on a moment- please run that by me again
    “It is now received economic wisdom that the Government’s “budget emergency” is an ideological confection”.
    ????? Oh Really!

    But we have:
    1. The Treasury Secretary saying that “opposition to the savings measures in the budget risks inflicting long-term damage to Australia’s economic future”. (The Australian
    • July 01, 2014)
    2. The Governor of the Reserve Bank warning that “there are things we want to do as a society, and have voted for, that are not fully funded by taxes over the medium term. (Reform or stagnate, RBA chief Glenn Stevens warns
    • by: David Uren
    • From: The Australian
    • April 04, 2014)
    and
    3.Parliament’s Independent Budget Advisor warning that:”the Budget crisis is real”.
    Financial Review 26 May 2014.

    Oh, I get it! These independent economic experts have all got it wrong!
    Thanks for that clarification!!!

  5. CML says:

    Ron – IMHO this article is restricted to the health costs only, which the government says are ‘unsustainable’. The numbers quoted here demonstrate that is NOT the case. I don’t see how you can argue with the facts, unless you are saying that these numbers are wrong? Do you have other ‘facts’ perhaps?
    Surely this proves that we do not need a $7 co-payment – certainly not one which is going into some ‘you beaut’ research fund – as this stupid idea won’t make health care more sustainable anyway.
    What needs to happen is this government should adequately fund their share of health care costs, and stop duck-shoving the issue on to the states and individual taxpayers. If more money is needed to do this, then raise the bloody Medicare Levy. That is how things have always been done, because we can’t have a universal health-care system unless we are prepared to pay for it.
    Having retired a few years ago after the best part of 50 years in the health-care system, I’m here to tell you that Medicare is great value for money.
    If you want to see what inadequate care looks like, move to the USA.

  6. Alex says:

    Another beat-up of this lying government revealed. Shouldn’t be surprised, although, the magnitude of the difference between the rhetoric and the facts is somewhat mind bogglng!

  7. Ron Batagol says:

    Thanks for comments- don’t get me wrong. I work in health area also and share concerns over the $7 co-payment( unless appropriate exemptions are in place for not only the disadvantaged, but also those with chronic conditions that end up costing so much more, in order to “patch them up” in hospital and send them back into the community where they can, in most cases, be more efficiently and effectively treated long-term. My comments were specifically around the final “throw-away” line about the future overall budget trajectory.

  8. CML says:

    Ron – The problem with introducing a co-payment of any kind, including one with exemptions, is that it ultimately reduces the universality and access for all that is the core basis of a universal health-care system.
    The LNP have been trying to destroy Medicare (and succeeded with Medibank in the 1970’s), ever since it was introduced. They have a hatred for ‘socialist’ anything, but know they would be lynched if they came right out and abolished what is a very popular scheme in the Australian psyche.
    So better to undermine it, and hopefully demolish it sometime in the future, after they have basically made it unworkable. Devious bast+rds! They think we are all stupid.
    I agree with your comment that there is a problem with the budget overall. However, I cannot support the way this government wants to fix it. Feel sure most people now accept that the whole plan (to fix the budget) is flawed and unfair. Also think this government knows that, but won’t attack their own supporters by reducing some of the major rorts that only benefit the wealthy.
    We shall see!!

  9. Bev Maunsell says:

    Ho hum! Liberal Party trys another angle to dismantle Medicare, they are getting
    more inventive. Of course their best effort (and successful) will be the sale of Medibank Private! No one to keep the brakes on all the new private players into the health insurance industry. Leading Health Fund is demutualized, overseas players enter the market – must be very profitble, but don’t worry, it’s tax deductible – yippee!

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