Show me the money – did a billion dollars go missing from the health system?
The Parliamentary Libraryâ€™s blog, FlagPost, has recently published a post on the current debate about health financing and the ongoing blame game. Thanks to the Parliamentary Library for allowing cross-posting.
The missing billion? Revisions to health funding not unprecedented
Rebecca de Boer writes:
Part of Australian health policy folklore is the claims and counter claims about health financing that endure between State and Commonwealth governments as well as between Government and Opposition. Perhaps the most famous example was theÂ claimÂ in 2003-04 by the then Opposition that Tony Abbott â€˜ripped one billion from public hospitalsâ€™, which stillÂ persistsÂ today.
The release of the 2012-13Â Mid-Year Economic and Fiscal OutlookÂ (MYEFO) at the end of last year reignited the debate about health funding. MYEFO notes that payments to the States for National Health Reform (NHR) funding differ from what was projected in the 2012-13 Budget. This is due to changes in the population estimates as a result of the 2011 Census and moderation to the Australian Institute of Health and Welfare (AIHW) health price index that reflect changes in medical inflation rates. Significant falls (up to 20 per cent, attributed to the high Australian dollar) in the price of medical and surgical equipment contributed to this. The difference between what was anticipated in the May Budget and MYEFO is around $1.5 billion over four years, as shown below.
MYEFO notes that the States will receive increased NHR funding in 2012-13 of $716.3 million compared with 2011-12 and that NHR funding is expected to grow at an average of 8.2 per cent across the forward estimates (p. 74). This reflects the Commonwealthâ€™s commitment to provide $16.4 billion of additional funding over 2014-15 to 2019-20 (p. 74).
Clauses A32 and A33 of theÂ NHR AgreementÂ set out the transition arrangements for 2012-13 and 2013-14. In both instances, the funding will be equivalent to the previous National Healthcare Special Purpose Payment (SPP). Indexation will be the same as the former National Healthcare SPP growth factor, as outlined in theÂ Intergovernmental Agreement, Schedule D, clause D24. The growth factor is a product of:
- a health specific cost index (a five year average of the AIHW health price index)
- the growth in population estimates weighted for hospital utilisation and
- a technology factor (the Productivity Commission derived index for technology growth)
Further recalculations in 2013-14 are likely as the Commonwealthâ€™s contribution to public hospital services (a component of NHR funding) will be recalculated according to public hospital activity (clause A33, c).
Planned Commonwealth expenditure is outlined in the Budget papers. Any changes are reported in MYEFO with actual expenditure then recorded in theÂ Final Budget OutcomeÂ for the relevant year.
Recalculations have happened before. In theÂ 2003-04 Budget, the Howard Government revised down the forward estimates for public hospital expenditure by $918 million. The variation wasÂ explainedÂ as the result of a â€˜greater proportion of public hospital services provided to non-admitted patients and a reduction in public hospital usage beyond growth resulting from demographic changeâ€™, partly attributed to greater use of private hospitals as a result of changes to private health insurance (p. 107).
Population changes were also cited as part of the reason for the revised figures in 2013-13 MYEFO. The ABSÂ updatedÂ the Australian population estimates based on the 2011 Census, as previous estimates wereÂ too highÂ (around 300 000 people).
Although the transition arrangements and indexation formula were agreed in the NHR Agreement, some States, notablyÂ VictoriaÂ andÂ Queensland, are blaming the Commonwealth for cutting health funding. The reduction in funding from the Commonwealth is in addition to previous health budget cuts instituted by these Governments (seeÂ hereÂ andÂ here). The Commonwealth was alsoÂ criticisedÂ for making these cuts mid year, without consultation, and after most States had already set their health budgets.
The most recent controversy over health financing highlights that the â€˜blame gameâ€™ is far from over. As has been notedÂ previouslyÂ it is unlikely to be resolved in the absence of structural reform or while there isÂ more than oneÂ funding body. The practice of revising forward estimates is likely to continue as Governments update projected expenditure according to more accurate information (such as population estimates) or changes to policy.
Some of the debate about funding public hospitals may be diffused in 2014-15 when the Commonwealthâ€™s contribution to public hospitals will be funded on an activity basis. Under this arrangement, a formal forecast of the Commonwealthâ€™s contribution will be published before the start of the financial year (see clause A36 of the NHR Agreement). States will also be able request informal estimates of the Commonwealthâ€™s contribution if estimates about service volumes are provided (see clause A37). But the underlying issues remain â€“ demand for hospital services isÂ increasingÂ and expenditure on hospitals isÂ projectedÂ to be around 80 per cent of the health budget by 2033. Unless there is a greater emphasis on primary care and prevention, predictions that there willÂ never be enough hospital funding will persist.