Introduction

Health currently accounts for about 20% of government expenditure, so rapid increases in the cost of health care have serious implications for government finances

The average 30-year-old New Zealand male currently receives about $900 of health care per year from the government health care system; the average 90-year-old male receives about $16,000 of care. The number of 30-year-old males is likely to increase by about 20% over the next 25 years, while the number of 90-year-old males will increase by 150%. The apparent implication of such numbers is that population ageing is about to put substantial upward pressures on government health expenditures. Health currently accounts for about 20% of government spending, so rapid increases in resources devoted to health care have serious implications for government finances.

International research has, however, led to some uncertainty about the link between population ageing and spending pressures. Econometric studies have produced mixed findings on the relationship between changes in countries’ age structure and changes in their health expenditure. More fundamentally, the focus on age structure may be misplaced, because underlying health status, rather than age, may be the real determinant of the demand for health care, and the relationship between age and health status varies over time.

While population ageing may lead to increased pressure to spend more on health, the relationship between ageing and health spending is not clear

This paper presents a model of how the demographic and health profile of the New Zealand population is changing, and how these changes create pressures for increased government health expenditure. The model is applied to historical data to estimate the contribution of demographic and health changes to historical expenditure growth. The model is also used to construct projections for coming decades.

Projecting decades into the future requires some strong assumptions, and there are important gaps in data on current health expenditures in New Zealand. The projection results therefore need to be interpreted with care. Projections can, however, illuminate trends and relationships that would otherwise be missed.

We examine how changes in New Zealand’s demographic and health profile affect government health spending

This report deals exclusively with governmenthealth expenditure, and makes no attempt to model private health expenditure. Government health expenditure currently makes up about 80% of total health expenditure in New Zealand. It should also be noted that the definition of government health expenditures used in this report differs from the definition used in many overseas studies, in that it includes long-term care as well as acute care. In New Zealand, acute and long-term care is currently funded through the same appropriation, “Vote Health”.[1]