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.
- 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 services are generally not strictly 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.
- Direct individual payments contribute more than twice as much as private health insurance: (individuals 17.7 private health insurance 8.7 and other non-government sources)
Jennifer Doggett is a Fellow of the Centre for Policy Development and a Consultant working in the health sector. This article first appeared in Croakey on October 7, 2016.
Jennifer Doggett is a health policy analyst and consultant who has worked in a number of different areas of the health system, including the federal health department and the community sector, and as a political advisor on health policy. She currently works with the health provider industry and consumer groups on a range of health issues.
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