Summary

Population ageing could put pressure on government health spending…

The average person aged 65 or over currently costs New Zealand’s public health system five times as much as the average person under 65. Over the next 50 years, the proportion of the population aged 65 and over is expected to double. This appears to imply that population ageing will put substantial pressure on government health care expenditures.

…but health status, coverage, technology and wages could have more influence

International evidence suggests, however, that changes in age structure may be a less decisive influence on health expenditure than is often assumed. The first reason is that health status, rather than age per se, is what matters for health expenditure. The second is that ‘non-demographic’ expenditure determinants appear to outweigh demographic ones.

We investigate the relationship between ageing, health and health spending

To explore the implications of these issues for New Zealand, an inter-disciplinary team from the Treasury and the Ministry of Health has constructed a model of ageing, health, and health expenditures. This paper uses results from the model to address the following questions:

Improvements in health could offset the spending pressures caused by population ageing

• Could improvements in health status offset the extra spending pressures created by the ageing of the New Zealand population?
• How will expenditure be distributed among different age groups?
• How important are changes in age structure, compared to other sources of health expenditure growth?
• What would happen to the ratio between government health expenditure and GDP if historical expenditure trends were to continue?

Over 60% of health costs will be spent on the elderly by 2051

The model results suggest that:

Health status, wages coverage and technology will remain key drivers of government health spending

If current trends continue, there will be a large increase in the percentage of GDP spent on health

• Improvements in health could offset over one third of the extra expenditure pressures generated by changing age structure
• Historically, population change has made a much smaller contribution to health expenditure growth in New Zealand than have “non-demographic” factors such as increases in input prices and changes in medical technology. Population change is likely to assume greater importance from the 2020s, but non-demographic factors will nevertheless remain the key determinant.
• Recent historical growth rates for non-demographic factors would, if continued, imply large increases in the ratio between government health expenditure and GDP.