Over the next 40 years as the population ages, real total health spending on those aged over 65 years is expected to increase around six-fold, while spending on those aged over 85 years is expected to increase around nine-fold, according to the Intergenerational Report 2023, released last week.
The report showed that a growing and older population is expected to contribute around 40% of the projected increase in health spending, with non-demographic factors such as the funding of new technologies accounting for the remaining 60%.
People aged 65 or older already account for around 40% of health spending, despite comprising only 16% of the population, and combined with population growth, demand for access to the highest standards of care and rapid technological innovation will also place pressure on the Government to increase expenditure.
Australian Government spending on health care has been steadily rising as a share of GDP since the 2000s, largely driven by non-demographic factors, including greater use of health services, tests and pharmaceuticals, decisions to subsidise the introduction of new technologies, and changes to the PBS.
Over the medium term:
- Hospital expenditure is the fastest growing component of Australian Government health expenditure, projected to increase from around $950 real per capita in 2022–23 to $1300 real per capita in 2033-34 – an increase of about 35%
- Medicare Benefits Schedule expenditure will grow from around $1050 per capita in 2022-23 to $1300 per capita in 2033-34 – a 25% increase, with 3% reflecting the tripling of bulk billing incentives.
“Considering escalating health pressures, it will be important to ensure that the health system provides value for money,” the report noted.
“This requires a health system that innovates and prioritises funding a patient-centred and sustainable Australian healthcare system that delivers the best outcomes for communities. This will require funding arrangements that continue to effectively invest in preventive health and evidence-based health care spending.”
A focus of the report was the impact of the ballooning costs associated with the NDIS, which has significantly out-cost initial estimates across nearly all measures, with jumps in participant numbers and increases in support package prices and scope the key drivers of growth.
There were 610,502 participants in the scheme as of 30 June 2023, or 49% more than the original Productivity Commission estimate of 411,000 at full roll-out in 2018-19, and 33% more than the updated estimate of around 460,000 participants in the 2013-14 Budget.
Part of this increase was due to higher-than-expected numbers of children joining the scheme – 313,476 participants were aged 18 years on 30 June 2023, more than half of the total number of participants, with children aged under seven years comprising 16%.
The other factor was that in the past four years, average support package costs increased by 6% each year, exceeding economy-wide price and wage rises.
The NDIS grew by 22.6% in 2022–23 and is currently projected to grow by 13.9% in 2023 -24, and by 9.3% in 2026–27, with the forecast reductions in growth a direct result of the $732.9 million provided over four years by the 2023–24 Budget.
The report noted that recent trends in the growth of both NDIS participants and average support package costs were a major contributor to changes in NDIS projections since 2021 but reflected an increase in the breadth and volume of support received by NDIS participants over time.
National Cabinet committed to a NDIS Financial Sustainability Framework in April, and while the report said that the NDIS remained demand driven, the framework provided an annual growth target for NDIS participant expenses of no more than 8% by 1 July 2026, with further moderation of growth as the scheme matures.
The scheme is assumed to reach maturity in 2043-44, when those who joined before age 65 have aged, and population-wide participation rates have stabilised, along with the breadth of supports provided in packages.
Once the Scheme reaches maturity, it is projected to grow with nominal GDP.
“A sustainable growth trajectory for the NDIS is critical for its long-term viability, so that it can continue to provide life-changing outcomes for current and future generations of people with disability,” the report said.
“The Government will work with the disability community and states and territories to implement initiatives announced in the 2023–24 Budget, including the Framework for financial sustainability, and ensure every dollar goes to support those for whom the Scheme was intended.”
An independent review of the NDIS is underway to improve its design, operations and sustainability, with the final report due in October.
Australian Government spending on aged care is also predicted to increase as a percentage of GDP, from 1.1% in 2022-23 to around 2.5% in 2062-63, caused mainly by projected increases in spending on residential care, in line with the growth in the number of people aged 80 and over – the primary users of aged care services.
The number of people aged 80 and over is expected to triple over the next 40 years, to more than 3.5 million people by 2062-63.