Care Bill May Increase By $30bn A Year
Sydney Morning Herald
Monday March 30, 1998
Even before most of the nation's baby boomers move into their fifties, Commonwealth spending on health services has been the fastest growing area of expenditure, averaging 5 per cent in real terms over the past decade.
Australians will be forced to pay more either through the tax system or private insurance schemes to meet the costs of providing its aging population with health care services.
Treasury figures estimate these costs could amount to more than $30 billion a year over the first three decades of the next century.
The latest Budget papers say the increase is "mostly driven by increased utilisation of services per person" - people going to the doctor or hospital more often.
"Some" growth is attributable to population growth and aging. The remainder of the increase reflects "the drift to more expensive services and procedures".
Australia's health expenditure as a share of the economy has risen dramatically since the 1960s.
Then, health expenditure represented 5 per cent of gross domestic product (GDP), or around $25 billion. Today, it is at 8.4 per cent or $42 billion. But the ratio levelled out during the 1990s, despite continuing rapid growth in health outlays, peaking at 8.6 per cent in 1992-93.
This was because Australia has managed to grow its economy at an average rate of 4 per cent since the last recession. The crunch will come when growth inevitably slows down.
The current ratio is about 30 per cent more than Britain and New Zealand, slightly less than other major Western economies, Germany, Sweden and France, and well behind the United States at 14 per cent.
The near doubling in Australia's health spending over the course of a generation has seen Medicare become one of the fastest growing areas of public expenditure.
Treasury's Retirement Incomes Modelling Taskforce has predicted that the aging population will add $32 billion a year to Australia's health bill in today's dollars by 2031.
This represents 6 per cent of GDP, while increased pension outlays would add another $5.8 billion.
The total cost of $38 billion slightly exceeds the relative drain on Australia's economy during the "banana republic" crisis in 1986 - and the second balance of payments crisis in 1994 - when the deficit peaked at 6 per cent of GDP.
The predicted rise in costs is equivalent to a 25 per cent increase in Commonwealth outlays.
Treasury's modelling is based on the recent trend of 2 per cent real per capita growth in health outlays. A more optimistic scenario produced in 1994 by the Economic Planning and Advisory Council (now absorbed into the Productivity Commission) says real per capita growth will average only 1 per cent.
But a research fellow with the Australian Institute of Health and Welfare, Mr Tony Hynes, argues that Australia's health costs are containable for the foreseeable future.
"I can't see that this is a crisis at that level of GDP. It's pretty good by world standards," he says.
The drift away from private health insurance is "not a disaster", he argues. Many people dropping out are young, healthy and will not present additional costs to the Government.
"The risk is they may involve extra expenditure in the future."
But in the long run it will make little difference whether increased health costs are met through private health insurance premiums or higher taxes.
"Eventually it comes out of your pocket. Whether it's financed through the tax system or individuals who use services, it's all private money."
© 1998 Sydney Morning Herald