Healthcare

About 80% of the total amount spent on healthcare in New Zealand is spent by the Government. We value healthcare because of its capacity to improve the length and quality of our lives and provide support and dignity for the sick. The health system also supports our economy by enabling greater participation in the workforce and higher productivity.

The discussion in this section draws on two Treasury background papers for the 2013 Statement on the Long-Term Fiscal Position: The Treasury (2013). Long-Term Health Projections and Policy Options and the Treasury (2013). Long-Term Care and Fiscal Sustainability. Available at www.treasury.govt.nz/government/longterm/fiscalposition/2013.

New Zealand's health system is fairly good at achieving its primary purpose: keeping people healthy. One way of measuring this is to look at rates of "avoidable" mortality; that is, deaths that shouldn't have happened given timely and effective medical intervention.[90] Figure 18 shows how New Zealand compares to other OECD countries. The lower the number the better, as the number shows how many deaths relative to population size could have been avoided with better healthcare.

Figure 18 Avoidable mortality in OECD countries

Over the past 40 years or so, technological developments have meant that more and more health conditions are treatable. Very few other areas of technological development have led to such a significant improvement in global living standards. Diseases that were once a death sentence can be cured or managed.

These developments are important drivers of the increases in life expectancies we have seen over these years. But new and more effective treatments tend to cost more money. That is not always the case - sometimes technology reduces costs through efficiency gains, or through health improvements that reduce the need for further care. But more frequently, public expectations of the health system increase as technology extends the range of possible treatments. Medical improvements may also increase the need for ongoing treatment of chronic conditions, as people live longer.

Past experience also suggests that higher incomes tend to increase healthcare spending. As our incomes have increased, we have chosen to spend more on healthcare services. At the same time, economic growth leads to higher wages across the economy, including in the health sector. So it can become more expensive over time just to maintain existing levels of services.

Population ageing matters too. We do not think our ageing population will be the only significant driver of future spending pressures, but it does affect healthcare spending, since older people tend to need more healthcare. Partly as a result of population ageing, and partly for other reasons such as people's lifestyles, the demands on the health system are changing. In future, we expect that chronic, long-term conditions such as diabetes and age-related diseases will be increasingly important. This may also contribute to rising healthcare costs.

The combination of demographic and technological change, increased demand and rising costs has meant that government spending on healthcare has increased as a share of GDP for most of the last 40 years. Since 1950, New Zealand's real per capita GDP has increased by 144%, while real per capita government spending on healthcare has increased by 412%. We think this trend will continue.

It is important to remember that public healthcare spending is driven in the first instance by decisions governments make each year about how much money to allocate to it. Those decisions in turn are influenced by demand for healthcare and what treatments are available. If governments let healthcare costs grow in response to all the pressures outlined above, the projections in our "Resume Historic Cost Growth" scenario suggest that healthcare costs would grow from around 6.8% of GDP in 2010 to more like 10.8% in 2060, a big change. And some people might see even that projection as conservative.

Ultimately, how much public healthcare expenditure grows will depend on choices governments make, and those choices will be influenced by society's preferences. There are ways we might be able to achieve a lower spending growth path while still preserving the core of our publicly funded system. Section H of this Statement outlined some of those ways.

We need to continue to reorient the healthcare system to deal with chronic conditions better

We cannot predict all (or even most) future changes to the healthcare system. One emerging issue that we can be fairly certain we will need to respond to, however, is the rising proportion of chronic health conditions, such as diabetes.

Our healthcare system (like the healthcare systems of other developed countries) was designed to deal best with acute conditions in a hospital environment. As the prevalence of chronic conditions rises, work is underway to shift the centre of gravity of our system so that it is better able to address these changing healthcare needs in a way that is both effective and cost efficient. We need to continue the momentum around this shift.

This is not just a fiscal issue. It is also about ensuring that our healthcare system delivers high-quality care and the best possible health outcomes for New Zealanders. One issue is that people often have multiple chronic conditions, rather than just one. And some conditions are best addressed on a number of fronts, including lifestyle factors like smoking as well as things that can be treated medically, like high blood pressure. This points to a need for more integration of care, with the patient as the focus, and better coordination between different health and social service providers.[91]

Characteristics of a high performing chronic care system[92]

1. Universal coverage
2. Care is free at the point of use or at a cost that does not act as a major deterrent
3. A delivery system that focuses on the prevention of ill-health and not just the treatment of sickness
4. Emphasis on patient self-management
5. Priority is given to primary health care, particularly multi-disciplinary team work in chronic care led by nurses
6. Support is commensurate with clinical risk
7. Primary health care teams can access specialist advice and support easily
8. Information technology is used to improve chronic care
9. Care is effectively coordinated, particularly for people with multiple conditions who are at greater risk of hospital admission
10. The nine characteristics above are linked as part of a strategic approach to change

New Zealand's health system is well on the way to having some of these characteristics, but there is room for improvement.

Long-term care provision will become increasingly important

As the population ages, the way long-term care is organised and funded is also likely to become increasingly important. "Long-term care" means services that are provided to people with enduring physical or mental disabilities, who are dependent on assistance with the basic activities of daily living, like washing, dressing, or using the bathroom. It may be provided together with medical assistance, such as medication, health monitoring, or palliative care, and can include help like housework and cooking assistance. It combines elements of medical and social services, and may be provided formally or informally, in people's homes or in an institutional setting.

People of all ages access long-term care, but the majority of those who need it are over 85. An ageing population - particularly growth in the 85+ age group - will put pressure on long-term care financing, in addition to the problems of rising wage costs and low productivity growth discussed earlier. Currently, we spend around 1.5% of GDP on long-term care, of which over 90% is funded by the Government. Public expenditure on long-term care could double over the next 50 years.

It makes sense that the Government should be involved in long-term care. But projected increases in expenditure of this magnitude should prompt us to think whether we want the Government to spend this much on long-term care and, if not, whether there are ways to reduce it. One approach would be to change parameters within existing programmes, for example stricter income and asset testing for subsidised care services.