Health spending growth at 30-year low

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By Leith van Onselen

The Australian Institute of Health and Welfare (AIHW) has released a new report revealing that Australian health spending growth has fallen to lowest level on record (in at least 30-years), driven by reductions in spending on the Pharmaceutical Benefits Scheme (PBS), public health, dental services and e-health:

…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.

The report shows government spending on health overall fell by 0.9% in 2012-13. This was largely due to a fall of 2.4% in the Australian Government’s funding. During the previous decade, Australian Government spending had experienced average annual growth of 4.4%.

The main drivers of the decrease in Australian Government spending were reductions in spending on the Pharmaceutical Benefits Scheme, public health, dental services and e-health. Spending also fell in the categories of health insurance premium rebates, Department of Veterans’ Affairs funding and the medical expenses tax rebate in 2012-13.

The report also shows that growth in state and territory government funding of health expenditure was relatively low. State and territory health spending grew by just 1.4% in 2012-13, 4.2 percentage points lower than the average growth for the decade.

In 2012-13, governments funded $100.8 billion or 68.3% of total health expenditure in Australia. This was 1.6 percentage points lower than in 2011-12, the largest reduction of the decade. The Australian Government’s contribution was $61.0 billion (41.4% of total funding) and state and territory governments contributed $39.8 billion (26.9%).

Non-government funding sources provided the remaining $46.6 billion (31.6%). The share contributed by non-government sources rose by 1.6 percentage points, with individuals contributing just over half of the increase (0.9 percentage points).

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The news is not all good, however, with the ratio of health spending to GDP rising over the past decade:

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Moreover, real heal expenditure per person has risen significantly over the past decade, from $4,593 per person in 2002-03 to $6,430 per person in 212-13 – an increase of 40%:

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The latest reduction in health expenditure has also been achieved by reducing the quantity of health services (i.e. rationing) rather than lowering costs (i.e. greater cost efficiency):

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Nevertheless, the ratio of health expenditure to tax revenue has fallen over the past few years, after a big lift following the GFC, which is good news for taxpayers:

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Overall, probably a better than expected report, which may represent the ‘calm before the storm’ given Australia’s ageing population profile.

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www.twitter.com/leithvo

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.