The model
The model contains two parts: a demographic-health component and an expenditure component.
The demographic-health component
We model the changes in health status by age group, based on historical trends
The population is divided by sex, and by 20 age groups (0-4, 5-9, and so on up to 95 and over.) Each age-sex group is subdivided into 4 health states by distance to death and by disability. Changes over time in the health of an age-sex group, and hence its demands on the healthcare system, are captured by changes in the relative size of the four health states. With two sexes, 20 age groups, and four health states, the model partitions the population into a total of 160 (=2×20×4) different categories. Overall changes in population structure and health are captured by changes in the number of people in these 160 categories.
The projections are based on the assumption that, across both sexes and all ages, mortality rates decline at 1.5% per year, which is approximately the historical average. Based on a review of international disability trends, it is assumed that the prevalence of disability within each age group declines at 0.5% per year. Experiments with alternative values for mortality and disability decline are also carried out.
Expenditure
We estimate changes in per capita health expenditure
Each of the 160 categories is assigned a value for government health expenditure per person per year. Multiplying costs per person by the number of people in each category, and then summing, gives total expenditure.
The growth rate for per capita health expenditure equals the sum of two terms. The first is the “ageing and health” effect. It measures the extent to which spending must increase to offset unfavourable changes in the age structure or health profile of the population. For instance, if there is a rise in the proportion of the population that is disabled, this will be captured by a rise in the ageing and health effect.
The second term is the “coverage and price” effect. This is an “everything else” term, measuring expenditure growth beyond that required to offset population trends. Growth in coverage and price reflects things such as expansion in the range of treatments offered, changes in the efficiency of service provision, changes in demand, and rises in wages or pharmaceutical prices. Because New Zealand, unlike some other developed countries, lacks good data on costs by health status, we have had to estimate these costs indirectly. This is an important limitation of our study.
