Catch-up time – are we there yet? (Vote Health is not the enormous sum you may think)

When finance minister Grant Robertson delivered the 2021/22 Budget, more funds were allocated to the health sector than ever before; $24.4 billion for one year, to be precise.

National's belt-tightening outweighed the effect of the Helen Clark government's period of acceleration

What to make of this? Is it about the right amount? Too much? Too little? Coming from a family of Dutch accountants, I’m giving it my best “back of the envelope” shot, gleaning data on healthcare spending in other countries and figures from past Budgets.

The question of how much governments should spend on healthcare is not a technical matter but, ultimately, a value-based question.

I might value healthcare above all other things (such as access to high-quality infrastructure, having a well-educated population, supporting our most vulnerable), but you might think many of these things are just as important, or more important. So we would come up with very different answers to the question. So, too, different governments have seen it differently over time.

We can get some bearings by looking at what happens over time, and what other countries spend on health. The $24.4 billion allocated for 2021/22 is about $1.2 billion, or 5 per cent higher than the 2020/21 allocation. On the face of it, that seems pretty significant. It is well above current inflation levels and interest rates.

We need to make a few adjustments, however. The best way of understanding healthcare spending is to look at per-capita figures. New Zealand’s population was increas¬ing at around 2 per cent a year before COVID-19 struck. We don’t have the figures yet, but let’s assume that the increase is a more modest 1 per cent in the wake of COVID. In that case, the Budget has provided a per-capita increase in health spending of about 4 per cent, not the 5 per cent we first thought.

However, to look at only a one or two-year snapshot might be misleading. Longer-term trends matter. The key question here is whether there is such a thing as a “normal” per-capita increase in health spending.

Luckily, the Organisation for Economic Co-operation and Development (OECD) has done some exhaustive analysis looking back to 2000 and ahead to 2030. The short story is that, across all 30 OECD countries, both the historical and projected annual per-capita increases average 3 per cent.

This is because – although economic growth averages about 2 per cent – spending on health services increases faster than other sectors of the economy due to ageing populations, new technolo¬gy, and the fact that healthcare is more labour intensive than other industries.

Once we strip out population growth and COVID-19, take off 0.5 per cent for the cost of health-system restructuring, and consider the OECD finding that 3 per cent more per capita is needed just to stand still, that $1.2 billion increase now looks only slightly better than par.

But a much bigger story lurks in the Budget figures.

In 2020/21, the Government spent an estimated $23.2 billion. However, looking from the vantage point of Budget day 2020, the spending then allocated to health for the year 2020/21 was $20.3 billion. In other words, the Government spent 14 per cent more on health services than it budgeted last year.

This extraordinary difference, much of which is likely due to COVID-19, puts the $24.4 billion figure in a different light. It is actually about 20 per cent higher than what was budgeted and spent two years ago. It is the most dramatic increase in baseline funding for health services in generations. And that increase is now baked in.

The Budget figures suggest that government spending on health in 2022 will be about $4500 per capita. If we go back to 2002, that figure was around $2350. If government health spending per capita had steadily increased 3 per cent every year from that baseline, it would have hit around $4250 in 2022.

So again, it looks like the Budget spend has gone up strongly. Does this mean that healthcare spending is back on track, allowing for a COVID buffer?

Well, wait, there’s more.

The actual increases in per-capita health spending by governments have been very uneven across the past 20 years, according to analysis in 2017 by Jackie Cumming from the Health Services Research Centre at Victoria University of Wellington.

Between 2002 and 2010, this increased by between 3 and 6 per cent every year. Then, between 2010 and 2017, it flatlined, averaging 0.25 per cent a year.

In the first part of the decade, there was fallout from the global financial crisis, but that was not the case in the later years. The effect of the National government’s belt-tightening outweighed the effect of the Helen Clark government’s period of acceleration.

According to the 3 per cent “rule”, by 2018, the govern¬ment “should” have been spending $3700 per capita. The actual figure was well under $3400. And that is the fundamental reason why our DHBs have run deficits.

I’ve only talked about the rate of increase, but how do we know if the baseline is about right? Are New Zealand governments more profligate or more frugal than other countries in healthcare spending?

Most high-income countries currently spend between 9 and 12 per cent of Gross Domestic Product on healthcare. New Zealand sits between the lower end and the middle of that band. All comparisons of per-capita spending consistently place New Zealand at the frugal end of the spectrum.

Putting all that together, we can conclude there were about five years of serious underfunding of health services in the late 2010s, to the tune of $150 per capita per year as a conservative estimate. That adds up to about $3.6 billion of underfunding over that period.

Much of that underfunding has translated into delayed diagnoses and treatment, on top of the considerable level of underlying unmet need that has not fundamentally changed in the past 10 to 15 years.

Addressing these shortfalls will likely have cost the health system more in the long run.

All in all, it is challenging to declare that the catch-up Budget has caught up in health. This will be possible only when we know more about the additional burden attributable to COVID-19. But it will still be some time before there is a case for arguing that New Zealand is spending too much on healthcare.

Tim Tenbensel is associate professor, health policy, in the School of Population Health at the University of Auckland

In which we hunt through media releases from Budget day

Localities

On $172.8 million to develop “prototypes” for new locality networks and hauora commis¬sioning models over the next four years:

“This is important investment, and we expect to see rapid progress in developing these new relationships and services that will be driven by, and tailored to, local populations.” – Jeff Lowe, General Practice NZ

Rural services

On rural health: “I know Budget 2021 will be demoralising for all rural health workers. They will see no answers to a sustainable funding model or a commitment to training our future rural health workforce in it.” – Grant Davidson, Rural General Practice Network

Public health

On public health service purchasing funding of $507 million (2.1 per cent of Vote Health): “While there are good, specific new initiatives this year, like bowel and cervical cancer screening, it’s disappointing to see overall public health invest¬ment stagnate outside the COVID-19 response.” – Boyd Swinburn, Health Coalition Aotearoa

Aged care

On funding for the aged-care sector: “Not only has it ignored pay disparities that are sucking nurs¬es from resthomes into hospitals, but it has added another layer of bureaucracy with the creation of an aged care commissioner, doubling up on already rigorous audit and reporting, at the cost of $8.1 million over four years.” – Simon Wallace, New Zealand Aged Care Association

Income support

On welfare increases: “The changes are useful if insufficient. Our modelling shows the changes fall short of liveable incomes, but these increases should still be high enough to make a difference for many families.” – Innes Asher, Child Poverty Action Group

Source: Media releases at nzdoctor.co.nz under Vault in Undoctored