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Modest health bill growth belies ‘unsustainable’ claims

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Federal Government complaints about unsustainable growth in health spending have been undermined by figures showing its health bill is growing little faster than the pace of inflation.

Australian Institute of Health and Welfare figures show Commonwealth health spending increased by 2.4 per cent to $66.2 billion in 2014-15, compared with a 2.3 per cent rise in underlying inflation over the same period.

State and Territory government spending was even weaker, contracting by 0.4 per cent to $42 billion – the first such decline in a decade.

The results undermine the Government’s case for swingeing cuts in the health budget, which have been based on assertions that public spending on hospitals, GPs and other health services has been out of control.

The AIHW’s Health expenditure Australian 2014-15 report shows, instead, that Federal Government spending has slowed sharply in recent years. 2014-15 was the third year in a row where expenditure growth was below the annual average of 4 per cent.

The figures demonstrate that increasingly the burden of health funding is falling onto the shoulders of patients, either directly through rising out-of-pocket costs or indirectly via rising private health insurance premiums.

Between 2004-05 and 2014-15, the Commonwealth’s share of the nation’s health bill slipped from 43.9 to 41 per cent. Over the same period, the states’ and territories’ share increased from 24 to 26 per cent, for individuals it went from 17.4 to 17.7 per cent and for health funds, from 7.7 to 8.7 per cent.

The cost-shifting was particularly stark in the three years to 2014-15, when a 1.3 percentage point jump in the health insurer’s share coincided with a 2 percentage point plunge in the Federal Government’s share.

The AIHW said this was driven by changes in the Government’s private health insurance rebates that had the effect of cutting its contribution, with insurers (and, more particularly, policyholders) picking up the tab. The development casts attempts to blame the surge in premiums on doctor fees or procedure costs in a different light.

Partly the shift in the Federal Government’s share can be explained by changes in revenue. The Commonwealth’s tax take has been hammered by the global financial crisis and the wind-down of the mining boom, and shrank by 1.5 per cent in 2014-15. By contrast, State and Territory tax collections have been growing at an above-average pace for the past decade. This has meant that while health has been grabbing a greater share of tax revenue at the Federal Government level, at the State and Territory level it has been shrinking.

Overall, the nation’s spending on health increased by 2.8 per cent in 2014-15 to $161.6 billion – well down from the 10-year average growth rate of 4.6 per cent.

However, because of the slowdown in the broader economy, health expenditure as a proportion of GDP actually increased 0.2 of a percentage point to reach 10 per cent of total output for the first time.

This is higher than the developed country median of around 9.1 per cent, but is comparable with countries including New Zealand, Canada, the United Kingdom and Finland, and far below the United States, where health expenditure accounts for 16.6 per cent of GDP.

Per person, Australia spends $6657 on health – ranked 10th highest among OECD countries but well below the US ($13,266), Switzerland ($9977) and Norway ($8940).

Adrian Rollins