No. 220

HEALTH PRICE SIGNALS ESSENTIAL – OTHERWISE LIVING LONGER REQUIRES HIGHER TAXES

 

STONE the crows! The US budget is fitter than diagnosed because the Yanks are spending less on health. The New York Times reports, “Health care, which has eaten into salary gains for years and driven up debt and bankruptcies, may be starting to stabilise as a share of national spending.” According to the paper, the Congressional Budget Office’s current estimate of Medicare spending in 2019 is $89bn lower than the estimate for that year in 2010.[i]

This does not strike the Crows as anything to caw about. As Australian Treasury forecasts show, any prediction for a period after Tuesday week is as accurate as astrology.

Even so, it does seem the US is containing the rate of increase in health outlays. The CBO suggests Medicare spending in 2013 was, and this year will be, up by 2 per cent ($US 12 bn), “ below the rate of growth in the number of Medicare beneficiaries.” The cause is lower labour and services costs.[ii]

Good for the Yanks. But the chance of this happening here is somewhere between Buckleys and none.

For a start, hospital costs will always rise to equal what the states can spend. No premier will take on the public health unions – the only thing worse than a nurses’ strike is for police to go out. So states’ spending on health is expected to rise from 2.5 per cent to 4 per cent of GDP by 2059-60.[iii] In the US, the recession reduced the rate of health spending growth from the middle of the last decade.[iv] But here, bulk billing ensured people kept consuming and Commonwealth health outlays will grow from 4 per cent to 7 per cent in the next half century.[v]

The problem is that insufficient people think outlays are an issue. Thus Monash health economist Jeff Richardson argues that even if medical spending grows faster than GDP it does not take up all the increase: “The unsustainability myth is created by focusing on percentages and not on the absolute level of resources available.”[vi] Good-oh. But the problem is that if the share of national income devoted to health grows faster than total growth, it crowds out something else.

The question for Professor Richardson is what would he like us to spend less on. The obvious drivers of other increased public outlays spring from one of the same sources, our ageing population. But I’m guessing he will not worry if pensions and aged care take a bigger proportion of GDP growth as well. So the only other source is to increase taxes as a share of GDP – but that will not work either.

Health consumers will spend however much government is prepared to allocate, and then some. The Parliamentary Budget Office estimates that on “current policy settings” spending on Medicare and public hospitals will be constrained to less than real GDP over the next ten years. If, and it is less a big than an enormous one, the electorate will wear it:

The sustained period of strong growth in Australian government spending over the past decade can reasonably be expected to have lifted the Australian community’s expectations of continuing higher levels of government services and benefits over the medium term. Realising the projected slowing in the pace of growth of Australian Government spending implies successfully adjusting these expectations.[vii]

Good luck with that. As the co-payment debate demonstrates, Australians simply do not accept responsibility for the cost of healthcare. In 2011-12, individuals, their health funds and other non-government sources funded 30.3 per cent of total health expenditure. This was down from 32.8 per cent in 2001-02.[viii]

So what to do? The erudite Anne-Marie Boxall suggests five ways to contain health expenditure.[ix] One is to create a health technology assessment agency, which will approve only “the most clinically effective and cost effective health care interventions.” Ah, yes. But only a cynic would suggest lobbyists working for drug companies, research institutes and patients’ groups would benefit most from this.

Another is to change the way practitioners are paid, restricting growth through fixed budgets and more salaried staff – which will not go down well with the various doctor unions.

A third is to constrain capacity – both facilities and practitioners. This makes economic sense but try to sell it to the minister who will have to explain elective surgery queues or specialist waiting lists. She also suggests encouraging competition, for example, by expanding the role of nurse practitioners – which will go down even worse with doctors.

Then there is requiring people to pay more of their own costs. Dr Boxall does not like this at all: “Even though Australia has a system of safety nets in place to protect people from excessively high out of pocket costs, evidence is now emerging that the cost of care is stopping some people from using necessary health services.”[x]

Even if any these solutions survived the political process, they do not address the core problem – just about everybody wants to live for as long as possible, and as well as possible. According to the Grattan Institute’s Stephen Duckett, “On average, a 50-year-old now is seeing doctors more often, having more tests and operations, and taking more prescription drugs, than a 50-year-old did ten years ago. The quality of the treatment they are getting has improved in many cases, and there are new treatments that did not exist in 2003.” [xi]

All of which we want, preferably funded by the state. And whatever the state spends will not be enough. Without price signals in competitive consumer markets increased health spending will be with us always like, well (less) death and (more) taxes.

 


Stephen4@hotkey.net.au

For speeches and strategies, faster, cheaper, better than your agency provides call me on 0417 469 093


 

ENDNOTES

[i] Margot Sanger-Katz and Kevin Quealy, “Medicare: not such a budget-buster anymore, New York Times August 27

[ii] Congressional Budget Office, “An update to the Budget and economic outlook: 2014-24,” August 2014 @ http://goo.gl/EicRqb recovered on August 30

[iii] National Commission of Audit, 7.3 “Pathway to reforming healthcare,” February 14 @ http://goo.gl/Oy56Cx recovered on August 30

[iv] Annie Lowrey, “Health care spending’s recent surge stirs unease,” New York Times, April 18

[v] NCOA ibid

[vi] Jeff Richardson, “Australia’s ‘unsustainable’ health spending is a myth,” The Conversation, May 12 @ http://goo.gl/GQHndG recovered on August 30

[vii] Parliamentary Budget Office, Projections of government spending over the medium term, February 2014 @ http://goo.gl/Pptcgb recovered on August 30

[viii] Australian Institute of Health and Welfare, Australia’s health 2014 @ http://goo.gl/GqUbDi AIHW 2013, recovered on August 30

[ix] Anne-marie Boxall, What are we doing to ensure the sustainability of the health system,” Parliamentary Library, Research Paper four, 2011-12, November 18 2011 @ http://goo.gl/B6QgbO recovered on August 30

[x] Boxall ibid

[xi] Stephen Duckett, “Tough choices: how to rein in Australia’s rising health bill,” The Conversation April 24 2103 @ http://goo.gl/bOvtLQ recovered on August 30

'2012