Academic journal article Australian Health Review

An Alternative Approach to Projecting Health Expenditure in Australia

Academic journal article Australian Health Review

An Alternative Approach to Projecting Health Expenditure in Australia

Article excerpt

Abstract

Objective: To introduce a large body of work that explores the modelling of expenditure on health services per person living with major causes of disease or injury as a valid basis for conclusions regarding future health expenditure in Australia.

Methods: Separate projections were calculated for important health conditions (or groups of conditions) by type of expenditure (hospital care, medical services, pharmaceuticals, aged care homes and other health services). Analyses accounted for expected changes in the number of affected cases, the proportion of cases treated, the volume of health services per treated case and excess health price inflation.

Results: Total health expenditure in Australia is expected to increase from 9.4% of GDP in 2002-03 to 10.8% of GDP in 2032-33. This represents a 15% increase in the "health:GDP" proportion over the projection period, or an annual growth of 0.5%. Two-thirds of this growth is accounted for by expected increases in population size and population ageing.

Conclusions: The lower annual growth in the "health:GDP" proportion compared with other estimates for Australia (range, 0.9% to 1.7%) was attributed to different assumptions regarding nondemographic growth factors, particularly volume per case. Explicit modelling of these factors separately for each condition ensured that assumptions remained within plausible limits.

Aust Health Rev 2008: 32(1): 148-155

IMPROVEMENTS IN HEALTH, particularly among the elderly, have been an important consequence of economic development. Better health, in turn, has led to greater economic development and more people surviving to old age. Together with decreasing fertility, this has contributed to population ageing. Interest is increasing across the developed world in the long-term sustainability of public finances in the context of these widespread demographic trends.

In most countries with time series data, expenditure on health has increased substantially across all components of the health system beyond what can be explained by changing age structure and size of the population alone. The main non-demographic factors influencing these trends are: new technologies, such as diagnostics, drugs or procedures; changing medical practice and policy; the organisation and financing of the health care system; the intensity or coverage of health services; the greater rate of increase in health prices compared with general prices ("excess health inflation"); and changes in population health status.

The influence of non-demographic factors is unlikely to be uniform across the health care system. Furthermore, is likely to vary over time depending on the type of health service and the particular health problem it addresses. Taking into account such detail when projecting health expenditure would be impractical. Instead, analysts have tended to extrapolate from observed trends in expenditure growth for aggregate categories of expenditure.

A common approach has been to apply growth factors for the combined effect of the non-demographic growth in health expenditure over time without necessarily making explicit the identified non-demographic growth factors.1"6 A few of these studies have considered overall changes in population health status by making assumptions about the increase in healthy years lived as life expectancy increases.1,2 Some have also included an "end-of-life" adjustment to account for the fact that many health resources are used in the last year of life;2,5'7 improvements in life expectancy shift this "expensive" period to older ages.8,9

Two health expenditure projection models have explicitly accounted for changes in population health status in greater detail.3,4 The first model projected public health expenditure in The Netherlands based on historical expenditure by disease, age and sex, and epidemiological projections of incidence and prevalence for 52 disease groups. …

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