Journal of the New Zealand Medical Association, 28-January-2005, Vol 118 No 1208
Health expenditure and the ageing population
A recent report issued by the New Zealand Ministry of Health raises important issues about the effect of the ageing population on the funding of future health services in New Zealand. The report entitled Population Ageing and Health Expenditure: New Zealand 2002–20511 was a joint project of the Ministry of Health and the New Zealand Treasury, and is available on the Ministry of Health website.1
The report is based on the observation that the population of New Zealand will begin a period of rapid structural ageing as the large ‘baby boom’ cohorts of 1945–1975 reach retirement age. This will transform the age distribution of the population, so (by the late 2040s) the proportion of the population aged 65 years and over will double—from 12% at present to approximately 24%.
At the same time, the proportion of the population aged 85 years and over will increase more than fourfold, from approximately 1.3% to 5.5% (Figure 1). This demographic transformation will create some problems for the provision of health services.
Figure 1. Older people (aged 65+ and 85+ years) as a proportion of the total population in New Zealand, 2001–2051
The report claims that per capita health expenditure in real terms is driven by the interaction of three factors—population ageing, health status, and coverage/prices. In reality, these factors are not independent of each other: mortality is both a dimension of health status and of population ageing, and investment in service coverage or health care technology impacts favourably on health status (both mortality and morbidity). It is the interaction of these variables that form the basis of the projected need.
In the New Zealand Medical Journal, we have previously considered whether enough is spent on healthcare in New Zealand.2 While (in absolute terms) the amount of money spent on healthcare has increased steadily, the percentage of GDP has largely constant since 1976 (Figure 2). Over the next 50 years, the Treasury’s long term fiscal model projects an average annual growth rate in gross domestic product (GDP) of 1.5% per worker.3
If the same percentage of GDP is spent, healthcare expenditure will continue to increase steadily, however is it enough?
Figure 2. Total health expenditure (constant 2002 dollars) and expenditure as a percent of gross domestic product (GDP) in New Zealand
There are many possible scenarios depending on the interaction of the variables described above that determine the need. The report Population Ageing and Health Expenditure: New Zealand 2002–2051 suggests the most likely scenario (i.e. the central scenario; characterised by a growth rate in coverage and prices of 1.5%, associated with a mortality reduction rate of 1.5% and a disability prevalence reduction rate of 0.5%) is where government health expenditure as a percentage of GDP increases over the projection period from 6.2% (in 2002) to 9.2% (in 2051), an increase of almost exactly 50%.
For the first decade (ie, until approximately 2012), there is no immediate change in the percentage of GDP spent on health. The rate of increase remains relatively slow until approximately 2026, after which it accelerates. Then under the most likely scenario (described above) there will be a one percentage point increase in the health share of GDP occurs from 2002 to 2026, compared to a two percentage point increase from 2026 to 2051.
The summary of key points and key messages from Population Ageing and Health Expenditure: New Zealand 2002–2051 are listed here.
The complex political economy effects of population ageing are not examined in the report. However, a substantial increase in the proportion of health care resources consumed by the 65+ age group, relative to younger age groups, appears inevitable.
More generally, they conclude that population ageing—despite associated improvements in (non-fatal) health status—will make a substantial contribution to future health spending pressure. However, this source of spending pressure will be less than that arising from the anticipated growth in coverage and prices.
Apart from the report Population Ageing and Health Expenditure: New Zealand 2002–2051, the Ministry of Health have released two other related reports on the health of the ageing population. The first is a background paper that reviews international literature on the projected impact of population ageing on health and disability support services and undertakes some preliminary assessment of future demand in New Zealand:4 Impact of population ageing in New Zealand on the demand for health and disability support services, and workforce implications.
The second report, which has been prepared by the New Zealand Institute of Economic Research (NZIER) is a discussion document that analyses demand for health and disability support services; projects future demand to 2021 and identifies workforce implications:5 Ageing New Zealand and Health and Disability Services 2001–2021.
To summarise, the effect of the ageing population is an important issue and will have a major influence on health expenditure in New Zealand over the next 50 years. Those interested in this subject should read the documents references below.
Author information: Frank A Frizelle, Professor of Colorectal Surgery, Department of Surgery, Christchurch Hospital, Christchurch
Correspondence: Professor Frank A Frizelle, Department of Surgery, Christchurch Hospital, Private Bag 4710, Christchurch. Fax: (03) 364 0352; email: email@example.com
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