Growth in health expenditure is slowing

Total health expenditure in Australia grew by over 7% between 2004-05 and 2005-06 to $87 billion or $4,200 per person according to a new report by the Australian Institute of Health and Welfare (AIHW).

Head of the Institute's Expenditure and Economics Unit, Mr John Goss, said health expenditure as a proportion of gross domestic product (GDP) was 9.0%, down slightly from 9.05% the previous year, and up from 7.5% in 1995-96.

'Our health to GDP ratio is comparable to New Zealand, is more than the UK, and is considerably lower than the USA, which in 2005 was 15.3% of GDP,' Mr Goss said.

The report, Health expenditure Australia 2005-06, shows that after adjusting for inflation, total health expenditure increased 3.1% in 2005-06, compared to annual average growth in the decade to 2005-06 of 5.1%.

The areas of expenditure that showed relatively high real increases (after allowing for inflation) were research (7%), public hospital services (6%), community health (5%), aids and appliances and other health practitioners (4% each).

The most noticeable slowing in real expenditure growth was in medications. This increased by just 1.6% in 2005-06, against an annual average real increase of 8.6% over the last decade.

The report showed the majority of spending in health was funded by governments (68%), with the Australian Government contributing 43%. State, territory and local governments contributed 25%. The non-government sector (individuals, private health insurance and other non-government) funded the remaining 32%.

In real terms, the Australian Government's funding grew by 0.7% in 2005-06. State, territory and local governments funding grew by 7.6% and non-government funding by 2.9%.

Key drivers for this change were the high increase in expenditure on public hospitals, which was largely borne by state and territory governments, and the slowing of expenditure in medications, which is primarily funded by the Australian Government.

Between 1995-96 and 2005-06, the Australian Government share of public hospital funding decreased from 45% to 41%. State and territory government funding during this period increased from 46% to 51%.

In 2005-06, individuals spent an estimated $15.4 billion on health goods and services (17% of total health expenditure): $5 billion for medications; $4 billion for dental services, $2 billion for aids and appliances and $1.7 billion on medical services.

Real growth in expenditure by individuals between 1995-96 and 2005-06 was 6.0% per year, 1.2 percentage points above the real growth in recurrent health expenditure (4.8%).

In previous editions of Health Expenditure Australia, high-level residential care expenditure was included as health expenditure.

This expenditure has been reclassified to welfare services, which reduces the health expenditure to GDP ratio by 0.6 percentage points to 9.0% of GDP, and correspondingly increases the welfare services expenditure to GDP ratio.


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