- How do we pay for health?
- Where are our health dollars spent?
- What do we get for our health dollars?
- Are costs escalating out of control?
- Growth in health spending is slowing
- How can we contain spending?
Health expenditure in Australia is jointly funded by public and private sources and by individuals.
Governments contribute 68% of total health funding (compared to the OECD average of 72%).
Private insurance accounts for just over 8% of total health funding.
Just over 20% of total health funding is being paid directly by individuals - this is the fastest growing area of all health expenditure.
Approximately 40% of Australia’s health expenditure is on hospital services with just less than 2% spent on prevention. The second largest component of health spending is for primary health care services, which include a range of front-line health services delivered in the community, such as GP services, dental services, other health practitioner services (for example, physiotherapists, optometrists), and all community and public health initiatives. It also includes the cost of medications not provided through hospital funding.
Each year approximately 85% of Australians visit a GP, but only about 15% are admitted to hospital, where a far greater proportion of health funds is spent.
Cardiovascular disease consumes the greatest proportion of health dollars at just over 10% of total disease expenditure.
Australia has some of the best health outcomes in the world: life expectancy rates above the OECD average, declining years of living with a disability and one of the lowest rates of amenable deaths in the OECD (i.e. deaths that could have been prevented with effective and timely care).
Australia performs well internationally on most health indicators, particularly in controlling tobacco use but now has the third highest obesity rate in the world. This is significant given that cardiovascular disease consumes the greatest proportion of our health dollars.
Last year the Commonwealth Fund ranked Australia’s health system 4th in the world based on measures of quality, access, efficiency, equity and healthy lives. Australia ranked particularly well for safety and quality, 2nd overall, but lagged behind on the measure of access because of cost-related problems.
Our poorer performance on access is exemplified by the disparities in health outcomes for those from lower socio-economic backgrounds, those living in rural areas and for Indigenous Australians.
Cost is already known to be a significant disincentive for some Australians in seeking health care. The Australian Bureau of Statistics reported that in 2013-14 almost 5% of Australians who needed to see a GP delayed or did not go because of the cost, one in twelve (7.9%) who needed to see a medical specialist delayed or did not go because of the cost and just over 20% did not go to the dentist because of the cost.
The figures are even higher in relation to medicines. The COAG Reform Council reported in 2014 that 8.5% of people in 2012-13 delayed or did not have prescriptions filled due to the cost. The Council found that this is up to 12.14% in disadvantaged areas and a shocking 36.4% for Indigenous Australians.
As a share of GDP, Australia’s total health spending (9.5%) generally equates to the OECD average of 9.4% and is well below that of the US (16.9%). Health spending per each Australian in real terms actually fell in 2012-13. While the share of GDP spent on health has grown over the last decade the reasons for this growth need to be understood.
The AIHW reports that much of the growth in health expenditure can be attributed to non-demographic factors such as the development of new technologies, pharmaceuticals and diagnostic and treatment techniques, which enable a wider range of health conditions to be managed more effectively. In addition, and perhaps consequently, community expectations of the health system and access to such technologies and services have also increased, driving health expenditure up faster than demographic factors (such as ageing) would predict.
Last year, the AIHW reported that growth in health spending was declining and that growth in spending for 2012-13 was the lowest recorded by the AIHW since the mid-1980s.
The report’s key conclusions were that:
- health expenditure per capita is stable;
- the Commonwealth ratio of health expenditure to tax ratio is falling;
- states’ share of hospital spending is rising (but slowly); and
- individuals are spending more (this is the most significant area of growth – in 2012-13 individuals spent $1,075 on health. This is additional to the Medicare levy, income tax and private health insurance for those who have it. It should be noted that those on the lowest incomes spend higher proportions of their household incomes on health).
Medicare is an extremely efficient means of funding health care, particularly when compared to private health insurance. The administrative costs of private health insurance including profit margin are about three times that of Medicare with Australians paying $2.5 billion per year towards these costs. In Australia only 84 cents in every dollar collected by private insurers is returned as benefits, the rest goes to administrative costs and corporate profits. By contrast Medicare returns 94 cents in the dollar.
Medicare has achieved its goal of improving access to healthcare very well, although some cracks are beginning to show. People in urban locations (which is the majority of Australians), are still very well served but inequities in access and outcomes are showing.
Some Australians are struggling to get timely access to affordable health care, especially in rural and remote areas. And many of the increasing number of people with chronic health conditions receive fragmented care, largely because it is delivered by a range of public and private providers working in relative isolation.
Medicare was designed in the 1960s and 1970s to meet the problems of that period. There has been no major review of the way it operates since then. What we have had is a series of patches, knee-jerk responses and band aids rather than structural reform. What’s needed to prepare for health into the future is not quibbling about funding for Medicare but structural reform of the health system.
The way to contain and sustain health spending is to improve Medicare and its coverage, improve access for the disadvantaged and contain the role of the private sector and private insurance.