The Australian Institute of Health and Welfare is Australia’s national health and welfare statistics and

Please note that as with all statistical reports there is the potential for minor revisions of data in this

report over its life. Please refer to the online version at <www.aihw.gov.au>.

HEALTH AND WELFARE EXPENDITURE SERIES

Number 30

Australian Institute of Health and Welfare, Canberra

AIHW cat. no. HWE 37

© Australian Institute of Health and Welfare 2007

reproduced without prior written permission from the Australian Institute of Health and Welfare.

Requests and enquiries concerning reproduction and rights should be directed to the Head,

Business Promotion and Media Unit, Australian Institute of Health and Welfare, GPO Box 570,

Canberra ACT 2601.

This publication is part of the Australian Institute of Health and Welfare’s Health and Welfare

Expenditure Series. A complete list of the Institute’s publications is available from the Institute’s

website <www.aihw.gov.au>.

ISSN 1323-5850

ISBN 978 1 74024 727 6

Australian Institute of Health and Welfare 2007. Health expenditure Australia 2005–06. Health and

Welfare Expenditure Series no. 30. Cat. no. HWE 37. Canberra: AIHW.

Board Chair

Hon. Peter Collins, AM, QC

Director

Penny Allbon

Any enquiries about or comments on this publication should be directed to:

John Goss

Australian Institute of Health and Welfare

GPO Box 570

Canberra ACT 2601

Phone: (02) 6244 1151

Email: expenditure@aihw.gov.au

Published by the Australian Institute of Health and Welfare

Printed by

v

Health expenditure in Australia .............................................................................................. xiv

Funding ............................................................................................................................... xiv

Areas of health expenditure .............................................................................................. xvi

What is health expenditure?.............................................................................................. xvi

High-level residential aged care ...........................................................................................2

1.1 The structure of the health sector and its flow of funds....................................................2

1.2 Revisions to ABS estimates....................................................................................................5

1.3 Changes to AIHW estimates .................................................................................................5

High-level residential aged care ...........................................................................................5

Public hospitals and public hospital services .....................................................................5

Private hospitals......................................................................................................................6

Individual out-of-pocket expenditure for dental services, other health practitioner

services, aids and appliances, all other medications and patient transport services ....6

State and territory funding of health expenditure .............................................................7

Premium rebates claimed through the taxation system....................................................7

2.1 Health expenditure and the general level of economic activity.......................................9

Health inflation......................................................................................................................12

2.2 Health expenditure per person ...........................................................................................13

2.3 Health expenditure in states and territories......................................................................14

2.4 Sources of growth in real health expenditure...................................................................18

2.5 Sources of nominal growth in health expenditure...........................................................18

3.1 Broad trends..........................................................................................................................20

Total recurrent funding........................................................................................................23

3.2 Government sources of funds .............................................................................................32

Australian Government .......................................................................................................32

State and territory governments and local government authorities..............................34

3.3 Non-government funding....................................................................................................34

Individuals .............................................................................................................................36

vi

Private health insurance.......................................................................................................39

Injury compensation insurers..............................................................................................47

4.1 Recurrent expenditure on health goods and services......................................................49

Institutional health services.................................................................................................50

Non-institutional health goods and services ....................................................................63

4.2 Capital expenditure ..............................................................................................................74

4.3 Capital consumption by governments...............................................................................76

4.4 Medical expenses tax rebate ................................................................................................77

5.1 Health expenditure in OECD countries.............................................................................78

5.2 International comparisons ...................................................................................................79

5.3 Health expenditure in the Asia–Pacific region .................................................................84

5.4 Australian System of Health Accounts ..............................................................................85

6.1 Background...........................................................................................................................90

6.2 History ...................................................................................................................................91

6.3 Residential aged care expenditures: estimating the distribution of expenditure

across different service needs..............................................................................................94

Implications of reclassification............................................................................................95

7.1 General...................................................................................................................................97

Health Expenditure Advisory Committee (HEAC) .........................................................97

7.2 Definition of health expenditure.........................................................................................98

7.3 Data and methods used to produce estimates................................................................102

General.................................................................................................................................102

State and territory expenditure tables..............................................................................102

State government contracting of private hospital services ...........................................103

Allocation of expenditure by the Australian Government to states and territories..103

Expenditure by state, territory and local governments .................................................103

Funding by the non-government sector ..........................................................................105

Health insurance funds ......................................................................................................105

Private health insurance rebates .......................................................................................105

Individuals ...........................................................................................................................105

Other non-government sources ........................................................................................106

Change in methodology for deflators ..............................................................................106

Blank cells in expenditure tables.......................................................................................107

Population...........................................................................................................................108

vii

7.4 Revisions of definitions and estimates.............................................................................108

Definitions...........................................................................................................................108

Revision of estimates ..........................................................................................................109

Notes to Appendix A tables ..............................................................................................125

Notes to Appendix B tables ...............................................................................................152

Notes to Appendix C tables...............................................................................................156

Price indexes ........................................................................................................................157

Deflation and constant price expenditure aggregates ...................................................157

Change in methodology.....................................................................................................158

viii

ix

In the financial year 2005–06, Australia‘s health expenditure totalled $86.9 billion,

representing 9.0% of gross domestic product (GDP). This compares with 9.05% of GDP in

2004–05 and 7.5% of GDP in 1995–96. Given the continual calls for more resources across the

different components of the health system, it is essential to understand what is currently

spent if there is to be informed discussion about where the money should be best spent.

Regular reporting of national health expenditure statistics is also vital to understanding the

characteristics of Australia’s health system. These statistics show the volume and proportion

of economic resources allocated through the health care system to foster the health and

wellbeing of the nation.

Welfare’s series of reports on national health expenditures, which have been produced

annually since 1986. This publication presents health expenditure data for the period 1995–96

to 2005–06, with detailed matrices at the national level and for each of the states and

territories for the years 2003–04 to 2005–06. This publication and previous publications in the

series are available at the Institute website

http://www.aihw.gov.au/expenditure/health.cfm

Detailed time series data back to 1960-61 is available in online datacubes at

http://www.aihw.gov.au/expenditure/datacubes/index.cfm

There have been some revisions to previously published estimates of health expenditure, due to

receipt of additional or revised data or changes in methodology. Comparisons over time should,

therefore, be based on information provided in this publication and on-line data, rather than by

reference to earlier editions. For example, data in this report are not comparable with the data

published in the previous issues because expenditure on high-level residential aged care which,

in earlier reports was classified to health, is now classified to welfare services.

Penny Allbon

Director

Australian Institute of Health and Welfare

x

This report would not have been possible without the valued cooperation and effort of the

data providers in the health authorities of the states and territories and the Australian

Government. The Australian Institute of Health and Welfare (AIHW) would like to express

its appreciation for their timely supply of data and their assistance with data validation.

Other data providers have also been very helpful. The AIHW also wishes to thank the

members of the Health Expenditure Advisory Committee who helped plan this report and

provided advice on its content.

The collection and analysis of the data and the writing of this publication was done by

Rebecca Bennetts, Gail Brien, Richard Webb and John Goss with assistance from Jenny

Hargreaves, Eric Puno, John Shelton Agar, Daniel Aherne and Maneerat Pinyopusarerk.

xi

ABS Australian Bureau of Statistics

ACCMIS Aged and Community Care Management Information System

ACFI Aged Care Funding Instrument

AHCA Australian Health Care Agreements

AIHW Australian Institute of Health and Welfare

CPI Consumer price index

DoFA Department of Finance and Administration

DoHA Australian Government Department of Health and Ageing

DVA Australian Government Department of Veterans’ Affairs

GDP Gross domestic product

GFCE Government Final Consumption Expenditure

GFS Government finance statistics

GHE Government health expenditure

GPC Government Purpose Classification

HACC Home and Community Care

HASAC Hospitals and Allied Services Advisory Committee

HEAC Health Expenditure Advisory Committee

HFCE Household final consumption expenditure

ICHA International Classification for Health Accounts

IPD Implicit price deflator

MBS Medicare Benefits Schedule

NHA National Health Accounts

NMDS National minimum data set

OECD Organisation for Economic Co-operation and Development

PBS Pharmaceutical Benefits Scheme

PET Positron emission tomography

PHE Public hospital establishments

PHIAC Private Health Insurance Administration Council

PHIIS Private Health Insurance Incentives Scheme

PHOFA Public Health Outcome Funding Agreements

PPP Purchasing power parity

RCS Resident Classification Scale

ROGS Report on Government Services

xii

RPBS Repatriation Pharmaceutical Benefits Scheme

SHA System of Health Accounts

SPPs Specific purpose payments for health under Section 96 of the Australian

Constitution

WHO World Health Organization

n.a. not available

. . not applicable

n.e.c. not elsewhere classified

— nil or rounded down to zero

xiii

• The provision of health services is an important part of the Australian economy.  Expenditure on health services reached $87 billion in 2005–06 which was 9.0% of Gross Domestic Product (GDP) (Table 2).

• Health expenditure grew more slowly in 2005–06 than the growth in GDP so the health to GDP ratio was down slightly from the 9.05% of GDP in 2004–05. But over the decade health expenditure grew much more strongly than GDP, so there has been a substantial increase in the health to GDP ratio from 7.5% of GDP in 1995–96 (Table 2). Australia’s health to GDP ratio is comparable with Italy and New Zealand, more than the UK and considerably less than the level in the USA of 15% of GDP (Table 51).

• Health expenditure is 2/3 funded by governments and 1/3 by individuals, private health insurance, and other non-government sources (Table 13). Real expenditure by individuals on health has grown over the decade at an average 6.0% per year compared to growth for overall recurrent health expenditure of 4.8% per year (Tables 20 and 25).

The biggest area of individual spending was on medications (34%), followed by dental services (23%) (Figure 7). Bulk-billing rates increased by 4.2 percentage points from 67.5% in 2003–04 to 71.7% in 2005-06 and this led to lower real growth in out-of-pocket payments for medical services for the last two years (Tables 41 and 42). But over the decade, medical out-of-pocket expenditure increased in real terms an average 4.2% per year.

• Of the two-thirds of funding for health spending coming from governments, $37 billion is contributed by the Australian government and $22 billion by state/territory/local governments (Tables 12 and 13). State funding grew in real terms by 7.6% in 2005-06 compared to a 0.7% growth in Australian Government funding (Table 21). In the decade as a whole the Australian Government funding grew in real terms on average 4.9% per year and state/territory and local government funding grew by 6.2% per year.  Over the last 10 years, the changes in proportions of funding between the Australian Government and the state and territory governments have not been driven by major changes in respective responsibilities.

• Key changes during the last decade included the Australian Government introduction of the private health insurance 30% rebate, increases in hospital expenditure primarily borne by the states and territories and a substantial slowing of pharmaceutical expenditure growth in the final year.

• There have been changes in the balance of funding due to the Australian Government’s decision to provide a rebate on private health insurance. The contribution to health funding made by private health insurance declined over the decade from 11% of total funding to 7% in 2005–06, due in large part to the Australian Government private health insurance rebate scheme taking up some of this funding (Figure 5).

• The state and territory share of funding of public hospitals has been growing over the decade (a 5 percentage point increase). The Australian Government share decreased by 4 percentage points. The relative shares in 2005-06 were 51% state/territory and 41% Australian Government, with the remainder being non-government (Table 35).

• After allowing for inflation, growth in health expenditure over the last decade averaged 5.1% while in 2005-06 growth was 3.1%, the lowest for the decade (Table 1). Within overall expenditure, the most noticeable slowing was in expenditure on medications, which increased by just 1.6% (after allowing for inflation) against an annual average real increase of 8.6% over the last decade (Table 20).

xiv

• Total health expenditure in Australia grew by 7.1% between 2004–05 and 2005–06 to $86.9 billion or $4,226 per person. This represents a $5.8 billion increase from 2004–05, or $225 more per person than the previous year (Tables 1 and 6).

• Real growth (adjusted for inflation) in expenditure on health was 3.1% in 2005–06 compared to real growth in 2004–05 of 5.3% and an average annual growth of 5.1% between 1995–96 and 2005–06 (Table 1).

• Expenditure for research grew in real terms by 7.0% in 2005–06, public hospital services grew by 5.6%, community health by 5.2%, aids and appliances by 4.0%, other health practitioners by 3.7%, private hospitals by 1.3% and medical services by 0.2% (Table A8).

• Real expenditure on medications increased 1.6% in 2005–06 (Table 20) compared to an average annual increase in constant prices of 8.6% from 1995–96 to 2005–06.

• In 2005–06, the majority of spending in health was funded by governments (67.8%), with

the Australian Government contributing $37 billion (42.9%) and state, territory and local

governments contributing $22 billion (24.9%). The non-government sector (households,

private health insurance and other non-government) funded the remaining $28 billion

(32.2%) (Tables 12 and 13).

• In real terms, Australian Government funding of health grew by an average of 4.9% a

year from 1995–96 to 2005–06, state and territory government funding grew by 6.2% and

non-government funding by 4.5% a year (Table 21).

• In 2005–06, the Australian Government’s total funding grew, in real terms, by 0.7%, state,

territory and local governments funding grew by 7.6% and non-government funding

grew by 2.9% (Table 21).

• Over the decade to 2005–06, governments increased their share of public and private

hospital funding by 7.8 percentage points (Table 34). The Australian Government share

increased by 3.2 percentage points from 37.4% to 40.6%. The state and territory

government share increased by 4.6 percentage points from 35.9% to 40.5%. The

non-government funding of public and private hospitals decreased from 26.7% in

1995–96 to 18.9% in 2005–06 (Table 34). Of this 7.8 percentage points increase, 5.6

percentage points was the effect of the Australian Government private health insurance

rebate scheme taking over some of the funding of private health insurance.

• Most funding for public hospitals came from governments in 2005–06—41% from the

Australian Government and 51% from the states and territories (Table 35).

xv

• Between 1995–96 and 2005–06, the Australian Government share of public hospital

funding decreased by 4 percentage points from 45% to 41%. State and territory

government funding during this period increased by 5 percentage points from

46% to 51% (Table 35).

• Between 2003–04 and 2005–06, the first three years of the second Australian Health Care

Agreements (AHCAs), the Australian Government share of public hospital funding

through the AHCAs declined 2.8 percentage points from 36.9% to 34.1%. State and

territory government funding during this period increased 2.5 percentage points from

48.1% to 50.6% (Table 36).

• The non-government sector funded 32% ($28 billion) of total health expenditure in

2005–06 (Table 24). Private health insurance funds provided 7% ($6 billion); individual

out-of-pocket payments accounted for 17% ($15 billion); and other non-government

sources (mainly compulsory motor vehicle third-party and workers’ compensation

insurers) accounted for the remaining 8% ($7 billion) (Table 24).

• Over the decade to 2005–06, non-government sector funding provided by private health

insurance funds decreased 4 percentage points from 11% to 7% of total health

expenditure, funding by individuals increased by 2 percentage points from 15.6% to

17.4% and funding by other non-government sources increased by 1 percentage point

(Table 24).

• The decrease in funding by private health insurance reflected the 30% rebate for private

health insurance from the Australian Government. Private health insurance benefits that

were previously funded almost entirely by private health insurance premiums were

instead funded 30% by the Australian Government. In 2005–06, 4% of total health

expenditure was funded by the Australian Government’s 30% rebate and 7% was funded

through private health insurance (Table A3).

• Medical services out-of-pocket expenditure in constant prices decreased by

4.1% ($71 million) between 2003–04 and 2005–06, but over the decade it increased by

$562 million which was an average of 4.2% per year (Table 41). Bulk-billing rates for

medical services were 71.7% in 2005–06, an increase of 0.6 percentage points since

1995–96. The peak was 72.3% in 1999–00 (Table 42).

• Real growth in expenditure by individuals between 1995–96 and 2005–06 was

6.0% per year, 1.2 percentage points above the real growth in recurrent health

expenditure (4.8%) (Tables 20 and 25).

• Private health insurance funding of $6 billion in 2005–06 was mainly spent on private

hospitals (49%), dental services (12%), administration (10%) and medical services (10%)

(Figure 8).

• Private health insurance funds (including Australian Government premium rebates)

were the source of funding for over two-thirds (69%) of private hospital expenditure in

2005–06 (Table A3).

• In 2005–06, out–of-pocket recurrent expenditure by individuals on health goods and

services was an estimated $15.4 billion: $5 billion (34%) was spent on medications;

$4 billion (23%) on dental services, $2 billion (13%) on aids and appliances and

$1.7 billion (11%) on medical services (Table A3 and Figure 7).

xvi

• In 2005–06, hospitals accounted for over one-third (38.6% or $31.0 billion) of recurrent

health expenditure. Expenditure on public hospital services (which excludes expenditure

on community and public health services, dental and ambulance services and health

research undertaken by public hospitals) was $24.3 billion and expenditure on private

hospitals was $6.7 billion (Table A3).

• Over the past three years, expenditure on hospitals accounted for the largest proportion

of real growth in recurrent health expenditure (42%)—public hospital services (38%) and

private hospitals (4%) (calculated from Table 20).

• The private hospital share of hospital expenditure increased from 21.7% of hospital

expenditure in 1995–96 to 22.7% in 2001–02, stabilised for three years and then declined

to 21.5% in 2005–06 (calculated from Table 33).

• Expenditure on all medications grew in real terms at an average of 8.6% per year from

1995–96 to 2005–06 (Table 20), but in 2005–06 growth was only 1.6%.

• In real terms, recurrent expenditure on pharmaceuticals for which benefits were paid

grew at an average of 9.1% per year from 1995–96 to 2005–06 (Table 43). In 2005–06 the

growth was 2.7%.

• In 2005–06, the total amount spent on pharmaceuticals for which benefits were paid was

$7.3 billion—81% of this was benefits paid by the Australian Government for PBS and

RPBS items; 16% was patient contributions and 3% was other pharmaceuticals

(comprising mostly Section 100 drugs) (Figure 16).

• Expenditure on ‘all other medications’ in 2005–06 was $4.2 billion—70% of which was for

over-the-counter medications (Figure 17).

Health expenditure comprises recurrent and capital expenditure on hospitals, medical,

dental, patient transport services, other health practitioner, community and public health

services, medications, aids and appliances, health research and the administrative systems

that support these services. Health expenditure is mostly funded by the Australian

Government and state and territory governments with some funding also by private health

insurance, households, local government, non-government and other private sector

organisations.

residential aged care was included with health, but this has been reclassified to welfare

services which now includes all aspects of residential aged care.

1

This publication reports on health expenditure in Australia, by area of expenditure and

source of funds for the period 1995–96 to 2005–06. Expenditure is analysed in terms of who

provides the funding for health care and what types of services attract that funding.

The bulk of funding for health expenditure is provided by the Australian Government and

the state and territory governments. Therefore, as well as consideration of the whole period

from 1995–96 to 2005–06, analyses of trends in expenditure have been linked to the periods

covered by the major health care funding agreements between these two levels of

government. These are:

• from 1 July 1993 to 30 June 1998

• from 1 July 1998 to 30 June 2003

• from 1 July 2003 to 30 June 2008.

Australia is compared with other member countries of the Organisation for Economic

Co-operation and Development (OECD) as well as other countries in the Asia–Pacific region.

The tables and figures in this publication detail expenditure in terms of current and constant

prices. Constant price expenditure adjusts for the effects of inflation using either the annually

re-weighted chain price indexes produced by the Australian Bureau of Statistics (ABS) or

either ABS or the Australian Institute of Health and Welfare (AIHW) implicit price deflators

(IPDs). Because the reference year for both the chain price indexes and the IPDs is 2004–05,

the constant price estimates indicate what expenditure would have been had 2004–05 prices

applied in all years.

2

Throughout this publication there are references to the general rate of inflation. These refer

to changes in economy-wide prices, not just consumer prices. The general rate of inflation is

calculated by the ABS using the IPD for gross domestic product (GDP).

Expenditure estimates for 1998–99 to 2004–05 that have been revised since the publication of

The high-level care portion of residential aged care facility expenditure was included in

facilities has now been reclassified as welfare services expenditure (see Chapter 6 for further

information). Hence, total expenditure data in this report are not comparable with previous

expenditure has reduced the health expenditure to GDP ratio in 2005–06 by 0.6% percentage

points (i.e. the health to GDP ratio would have been 9.6% without the reclassification)

(Table 64). The welfare services expenditure to GPD ratio would have increased accordingly

(AIHW in press).

The flow of money around the Australian health care system is complex and is determined

by the institutional frameworks in place, both government and non-government. Australia is

a federation, governed by a national government (the Australian or Commonwealth

Government) and eight state and territory governments. Both these levels of government

play important roles in the provision and funding of health care. In some jurisdictions, local

governments also play a role. All of these levels of government collectively are called the

government sector. What remains is the non-government sector, which in the case of funding

for health care comprises individuals, private health insurers and other non-government

funding sources (principally workers’ compensation and compulsory motor vehicle

third-party insurers, but also includes funding for research from non-government sources

and miscellaneous non-patient revenue received by hospitals). Figure 1 shows the major

3

flows of funding between the government and non-government sectors and the providers of

health goods and services.

Most non-hospital health care in Australia is delivered by non-government providers,

among them private medical and dental practitioners, other health practitioners (such as

physiotherapists, acupuncturists and podiatrists) and pharmaceutical retailers. Delivery of

health care can occur in a diverse range of settings—hospitals, rehabilitation centres,

community health centres, health clinics, ambulatory care services, the private consulting

rooms of health practitioners, patients’ homes or workplaces, and so on.

In summary, the following are the main features of Australia’s health system (see Figure 1):

• Universal access to benefits for privately provided medical services under Medicare,

which are funded by the Australian Government, with co-payments by users when the

services are not bulk-billed.

• Eligibility for public hospital services, free at the point of service, funded jointly by the

states and territories and the Australian Government.

• Private hospital activity largely funded by private health insurance, which in turn is

subsidised by the Australian Government through the 30% rebates on members’

contributions to private health insurance.

• The Australian Government, through its Pharmaceutical Benefits Scheme (PBS) and

Repatriation Pharmaceutical Benefits Scheme (RPBS), subsidises a wide range of

pharmaceuticals outside public hospitals, and also funds a wide range of services for

eligible veterans.

• The Australian Government provides most of the funding for health research.

• State and territory health authorities are primarily responsible for the operations of the

public hospital networks, mental health programs, the transport of patients, community

health services, and public health services such as health promotion and illness

prevention.

• Individuals primarily spend money on medications, private hospitals, medical, dental,

other health practitioner services and aids and appliances.

4

Private hospitals

Medical practitioners

Pharmaceutical retailers

Dental practitioners

Other health practitioners

Administration

Research

Public hospital services

Patient transport services

Dental services

Community health services

Public health services

Research

Administration

Government flows Non-government flows

Tax rebates(a)

Direct payments and subsidies to

non-government service providers

Purchase of services for veterans

Specific purpose

payments

Purchase of

services for

veterans

Benefits paid Benefits paid

Payments for

services

Out-of-pocket payments

& co-payments

Direct grants

and expenditure

Direct grants and

expenditure

30% rebate on premiums

Out-of-pocket

payments &

co-payments

Tax rebates(a)

30% rebate on premiums

Benefits paid

Payments

for services

Benefits paid

Contributions Contributions

(a) The tax rebate is not an expense of the Australian Government Department of Health and Ageing, but is a tax expenditure of the Australian Government.

Specific

purpose

payments

5

Revisions to ABS estimates of GDP and capital expenditure have affected the estimates in

this publication, as in previous issues.

GDP estimates for this publication are sourced from the ABS (ABS 2007a). The current price

GDP estimates in that ABS publication are slightly higher for all years, except for 2003–04

(AIHW 2006a).

In this report there are a number of areas of health expenditure for which there were

substantial changes in the methodology used to calculate estimates of expenditure. The

results of these methodological changes are summarised below and are explained in detail in

Chapters 6 and 7.

The work of the Health Expenditure Advisory Committee (HEAC) (see Chapter 7) will, over

time, further enhance the quality and comparability of health expenditure data reported in

classified as part of health expenditure. In this report and for all subsequent reports this

expenditure has been reclassified as welfare expenditure and is reported in the AIHW’s

care from health to welfare services expenditure has reduced the health to GDP ratio and the

estimates of Australian Government expenditure on health. The health to GDP ratio is 9.0%

in 2005–06 and would have been 9.6% if high-level residential aged care expenditure was still

reported under health expenditure. See Chapter 6 for further details.

There is a break in series due to differences in definitions of public hospital and public

hospital services between 2002–03 and 2003–04. Prior to 2003–04, the AIHW Public Hospitals

each state and territory. This expenditure reflects the level of expenditure on goods and

from the state and territory health authorities, are used for 2003–04 onwards and reflect the

any community health services, dental services, patient transport services, public health and

health research expenditure undertaken by public hospitals. These expenditures are included

under their respective categories in the health expenditure matrix. Due to this change in data

source for public hospitals, there is a resulting break in time series between 2002–03 and

6

2003–04 for patient transport services, community health, public health and dental services

as well. For example, patient transport expenditure that prior to 2003–04 was captured as

part of public hospitals expenditure, would now be captured as part of patient transport

services expenditure (see Box 3 in Chapter 4 for further details).

The ABS Private Hospital Survey series (ABS, cat. no. 4390.0) is the source of data on total

slightly due to methodological differences.

A change in the methods used to estimate individual out-of-pocket expenditure for dental

services, other health practitioner services and aids and appliances for 2002–03 onwards has

resulted in substantial revisions to these numbers in this report. The previous methods had

relied on high level ABS data which proved to be unreliable and was subject to substantial

revision over time. The new methods mostly rely on detailed private health insurance data.

As a result of this change in methods there were large upward revisions to individual

expenditure on ‘other health practitioner services’ for 2002–03, 2003–04 and 2004–05 of

$486 million (65.4%), $347 million (34.4%) and $362 million (31.6%) respectively. In contrast,

this change in methodology has generally resulted in large downward revisions to

individual out-of-pocket expenditure on aids and appliances. In 2003–04 this decrease was

$533 million (22.9%) while for 2004–05 it was $1.1 billion (35.4%). This change in

methodology did not have a substantial impact on individual out-of-pocket expenditure for

dental services.

Revisions to individual out-of-pocket expenditure on ‘all other medications’ for 2001–02

onwards meant there was a decrease of $562 million (15.2%) for individual out-of-pocket

spending on ‘all other medications’ for 2002–03, an increase of $24 million (0.7%) for 2003–04

and an increase of $309 million (8.7%) for 2004–05.

In addition, for 1997–98 onwards, there was a change in the method used to calculate

individual out-of-pocket expenditure on patient transport services by relying on data from

the Productivity Commission’s Report on Government Services (ROGS). This change in

method has resulted in downward revisions to individual out-of-pocket expenditure on

patient transport services of $171 million (43.4%) in 2002–03, $212 million (54.2%) in 2003–04

and $258 million (57.7%) in 2004–05.

The overall impact on individual out-of-pocket expenditure due to the changes in

methodology for dental services, other health practitioner services, aids and appliances, all

other medications and patient transport services was a decrease of $1.4 billion (10.5%) in

2002–03, a decrease of $1.9 billion (12.7%) in 2003–04 and a decrease of $2.5 billion (15.3%) in

(AIHW 2006a).

7

The Institute received revised data from the Northern Territory health authority that has

resulted in a downward revision to Northern Territory funding of recurrent health

expenditure of $18 million for 2002–03, an upward revision of $112 million for 2003–04 and

an upward revision of $37 million for 2004–05.

Domiciliary care services expenditure is classified as welfare services expenditure not health

expenditure. This has been the case for over 10 years. However some States had been

reporting domiciliary care services expenditure as part of community health services

expenditure. This misreporting has been corrected by moving this expenditure to welfare

services where it can be identified, from 2003–04 onwards. This has resulted in quite large

downward revisions for community health services of $494 million and $584 million for

2003–04 and 2004–05 respectively.

for 2004–05 were reported to be $314 million based on advice from the Australian Tax Office.

This preliminary estimate has been revised by the Australian Tax Office down to

$155 million.

8

Total expenditure on health goods and services in Australia in 2005–06 was estimated at

$86.9 billion (Table 1). Of this, 92.5% was for recurrent expenditure and 7.5% was for capital

expenditure and capital consumption. Total health expenditure increased by 7.1% over the

previous year ($5.8 billion). This was 1.2 percentage points lower than the average for the

decade 1995–96 to 2005–06 of 8.3%. The areas showing the highest growth in 2005–06

(Table 17) were:

• public hospital services—up 10.1% ($2,228 million)

• other health practitioners (such as physiotherapists, chiropractors and podiatrists, see

Table 65 for full list)—up 8.7% ($243 million)

• medical services up 5.8% ($853 million)

• private hospitals up 5.6% ($356 million).

In contrast, medications showed a growth of just 3.0% ($335 million) in 2005–06.

After allowing for inflation, real growth between 2004–05 and 2005–06 was estimated at 3.1%.

This was 2 percentage points below the average for the decade 1995–96 to 2005–06 of 5.1%.

The real growth between 2004–05 and 2005–06 was the lowest recorded over the decade

(Table 1).

Expenditure for research grew in real terms by 7.0% in 2005–06, followed by public hospital

services at 5.6%, community health by 5.2%, aids and appliances by 4.0%, other health

practitioners by 3.7%, private hospitals by 1.3% and medical services by 0.2% (Table A8).

Real expenditure on medications increased 1.6% in 2005–06 (Table A8) compared to an

average annual increase in constant prices of 8.6% from 1995–96 to 2005–06.

1995–96 39,047 50,948 . . . .

1996–97 42,116 54,015 7.9 6.0

1997–98 44,802 56,266 6.4 4.2

1998–99 48,502 59,393 8.3 5.6

1999–00 52,442 62,786 8.1 5.7

2000–01 58,287 68,090 11.1 8.4

2001–02 63,448 70,802 8.9 4.0

2002–03 68,932 74,334 8.6 5.0

2003–04(b) 73,945 77,036 7.3 3.6

2004–05 81,125 81,125 9.7 5.3

2005–06 86,879 83,601 7.1 3.1

1995–96 to 1997–98 7.1 5.1

1997–98 to 2002–03 9.0 5.7

1995–96 to 2005–06 8.3 5.1

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical

notes for further information).

9

The ratio of Australia’s health expenditure to GDP (health to GDP ratio) indicates the

proportion of overall economic activity contributed by health expenditure. It is estimated that

spending on health accounted for 9.0% of GDP in 2005–06—down from 9.05% in the previous

year and is a substantial increase from 7.5% in 1995–96 (Table 2). Despite the slight decrease

over the last year the overall increase in the decade was 1.5 percentage points of GDP. The

largest increase occurred in 2000–01 when the ratio grew by 0.4 percentage points. Over the

decade as a whole, GDP grew at 6.4% per year but health expenditure growth was higher at

8.3% per year (Table 2).

All expenditure on high-level residential aged care is now reported as welfare services

expenditure (see Section 1.5 and Chapter 6). Total health expenditure for previous years has

been revised to exclude the high-level residential aged care expenditure that was previously

included under health expenditure.

1995–96 39,047 . . 518,144 . . 7.5

1996–97 42,116 7.9 545,698 5.3 7.7

1997–98 44,802 6.4 577,373 5.8 7.8

1998–99 48,502 8.3 607,759 5.3 8.0

1999–00 52,442 8.1 645,058 6.1 8.1

2000–01 58,287 11.1 689,262 6.9 8.5

2001–02 63,448 8.9 735,714 6.7 8.6

2002–03 68,932 8.6 781,675 6.2 8.8

2003–04 (a)73,945 7.3 840,285 7.5 8.8

2004–05 81,125 9.7 896,568 6.7 9.0

2005–06 86,879 7.1 966,442 7.8 9.0

1995–96 to 1997–98 7.1 5.6

1997–98 to 2002–03 9.0 6.2

1995–96 to 2005–06 8.3 6.4

(a) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for

further information).

10

1995–96 50,948 . . 647,659 . .

1996–97 54,015 6.0 673,099 3.9

1997–98 56,266 4.2 703,258 4.5

1998–99 59,393 5.6 739,629 5.2

1999–00 62,786 5.7 769,045 4.0

2000–01 68,090 8.4 784,017 1.9

2001–02 70,802 4.0 813,542 3.8

2002–03 74,334 5.0 839,187 3.2

2003–04 (b)77,036 3.6 873,197 4.1

2004–05 81,125 5.3 896,568 2.7

2005–06 83,601 3.1 922,772 2.9

1995–96 to 1997–98 5.1 4.2

1997–98 to 2002–03 5.7 3.6

1995–96 to 2005–06 5.1 3.6

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1995–96

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Total health expenditure Ratio of health expenditure to GDP

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

11

The health to GDP ratio can increase during a period for one or both of the following reasons:

• The level of use of health goods and services can grow at a higher rate than the growth in

the use of all goods and services in the economy (a volume effect).

• Price changes in the health sector can be higher than the economy-wide price changes.

This is a price effect and is called ‘excess health inflation’.

These two components are shown in the last two columns of Table 4. The second last column

is the differential real volume growth and shows the increase or decrease in the volume of

health goods and services relative to the increase or decrease in the GDP volume. The last

column is excess health inflation and shows the increase or decrease in the price of health

goods and services compared to price changes in the economy as a whole.

In 2005–06, the health to GDP ratio was 9.0%, slightly down from 9.05% of GDP in 2004–05,

and up from 7.5% of GDP in 1995–96. The change in the health to GDP ratio from 2004–05 to

2005–06 was –0.6% (Table 4). This comprised a 0.1% increase in the volume of health goods

and services relative to the increase in GDP volume and a 0.8% decrease in the price of health

goods and services above price increases in the general economy. The change in the health to

GDP ratio between

2004–05 and 2005–06 was therefore due to an increase in the volume of health goods and

services and a decrease in the relative cost of these goods and services.

In contrast, in 2004–05 the change in the health to GDP ratio was 2.8% (Table 4), comprising a

2.6% faster increase in the volume of health goods and services relative to the increase in GDP

volume and a 0.3% increase in the price of health goods and services above price increases in

the general economy.

1995–96 7.54 . . . . . .

1996–97 7.72 2.4 2.0 0.4

1997–98 7.76 0.5 –0.3 0.8

1998–99 7.98 2.8 0.4 2.5

1999–00 8.13 1.9 1.7 0.2

2000–01 8.46 4.0 6.4 –2.2

2001–02 8.62 2.0 0.2 1.8

2002–03 8.82 2.3 1.8 0.5

2003–04 8.80 –0.2 –0.4 0.2

2004–05 9.05 2.8 2.6 0.3

2005–06 8.99 –0.6 0.1 –0.8

(a) The ratio of the relative change of total health expenditure in constant prices to the relative change of

GDP in constant prices, expressed in percentage terms.

12

In 2005–06, estimates indicate that real health and real GDP expenditure increased

respectively by 3.1% and 2.9% (Table 3); a negative (0.8%) excess health inflation figure

contributed to a declining nominal growth (Table 5). The health expenditure growth rate for

2005–06 (3.1%) was the lowest for the decade and compares to 8.4% in 2000–01 and 6.0% in

1996–97 (Table 1).

Both GDP and health expenditure grew in every year from 1995–96 to 2005–06 (Table 3 and

Figure 3). Apart from 2003–04, real health expenditure has grown more strongly than real

GDP in every year since 1998–99. The greatest difference in the annual rate of growth of real

health expenditure and real GDP, 6.5% was in 2000–01 (Table 3).

0

1

2

3

4

5

6

7

8

9

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

Health expenditure

GDP

(a) Growth rates calculated from the preceding year to the year indicated.

(b) Constant price expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

The differences in the rate at which health prices move and the general level of inflation in the

economy as a whole can have a strong influence on the health to GDP ratio. The general level

of inflation is measured using the ABS implicit price deflator for GDP, and health inflation is

indicated using the total health price index (Table 5). Australia’s health inflation has tended to

move ahead of the general level of inflation in most years, with the notable exception of

2005–06. Between 1995–96 and 2005–06, the average rate of general inflation was 2.7% per year

(Table 5).

13

Health inflation during that period averaged 3.1% per year, giving an excess health inflation

rate of 0.4% per year. From 2004–05 to 2005–06, general inflation (the GDP implicit price

deflator) was 4.7%—the highest it has been since 2000–01. The high level of the GDP deflator

was mostly due to the higher prices received for Australia’s exports in this year. A better

measure of the actual price increases faced by consumers (rather than the GDP deflator) is the

price increase in total final consumption expenditure which was 3.0% in 2005–06 (ABS 2007a).

1995–96 to 1996–97 1.7 1.3 0.4

1996–97 to 1997–98 2.1 1.3 0.8

1997–98 to 1998–99 2.6 0.1 2.5

1998–99 to 1999–00 2.3 2.1 0.2

1999–00 to 2000–01 2.5 4.8 –2.2

2000–01 to 2001–02 4.7 2.9 1.8

2001–02 to 2002–03 3.5 3.0 0.5

2002–03 to 2003–04 3.5 3.3 0.2

2003–04 to 2004–05 4.2 3.9 0.3

2004–05 to 2005–06 3.9 4.7 –0.8

1995–96 to 1997–98 1.9 1.3 0.6

1997–98 to 2002–03 2.6 2.5 0.5

1995–96 to 2005–06 3.1 2.7 0.4

(a) Based on the total health price index (see Glossary).

(b) Based on the implicit price deflator for GDP (see Appendix D).

As the population grows, it could be anticipated that health expenditure must also increase,

to maintain the average level of health goods and services available to each person in the

community. By examining health expenditure on a per person basis, the influence of changes

in the overall size of the population is removed from the analysis.

During 2005–06, estimated per person health expenditure averaged $4,226, which was

$225 more per person than the previous year (Table 6). Real growth in per person health

expenditure between 1995–96 and 2005–06 averaged 3.8% per year, compared with 5.1% for

total national health expenditure (Tables 1 and 6). The difference between these two growth

rates is the result of growth in the overall size of the Australian population.

14

1995–96 2,146 2,800 . . . .

1996–97 2,286 2,932 6.5 4.7

1997–98 2,407 3,022 5.3 3.1

1998–99 2,577 3,156 7.1 4.4

1999–00 2,754 3,297 6.9 4.5

2000–01 3,023 3,531 9.8 7.1

2001–02 3,247 3,624 7.4 2.6

2002–03 3,485 3,758 7.3 3.7

2003–04(c) 3,692 3,847 6.0 2.4

2004–05 4,001 4,001 8.4 4.0

2005–06 4,226 4,066 5.6 1.6

1995–96 to 1997–98 5.9 3.9

1997–98 to 2002–03 7.7 4.5

1995–96 to 2005–06 7.0 3.8

(a) Based on annual mean resident population (see Appendix G).

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

Average health expenditure per person varies from state to state because of different

socioeconomic and demographic profiles, and the mix of public and private providers in each

state and territory. In addition, health expenditure is influenced by the different health policy

initiatives pursued by each State and territory government and the Australian Government.

Consequently, while health expenditure per person is similar across most populations, there

are differences between the states and territories in the way health expenditure is distributed.

Estimates of health expenditure on a state and territory basis have been done since

1996–97. The highest real growth in recurrent health expenditure, between 2003–04 and

2005–06, occurred in the Northern Territory (12.0%) where real recurrent health expenditure

increased from $886 million in 2003–04 to $992 million in 2005–06. The lowest growth occurred

in Tasmania (5.8%), where real recurrent health expenditure increased from $1,613 million to

$1,707 million during that period (Table 8). Growth in health expenditure is the result of extra

services provided per person and population growth.

15

1996–97 13,495 9,968 7,087 3,577 3,010 1,143 703 450 39,433

1997–98 14,243 10,509 7,496 3,977 3,183 1,113 733 506 41,759

1998–99 15,754 11,071 7,890 4,147 3,509 1,137 863 523 44,892

1999–00 16,581 12,153 8,589 4,523 3,852 1,233 1,007 590 48,528

2000–01 18,064 13,767 9,789 5,103 4,183 1,339 933 632 53,810

2001–02 19,774 15,204 10,394 5,568 4,542 1,576 1,051 683 58,792

2002–03 21,187 16,664 11,298 6,281 5,068 1,502 1,169 771 63,941

2003–04(b) 23,293 17,129 12,258 6,825 5,503 1,548 1,274 852 68,682

2004–05 25,440 18,825 13,431 7,519 5,977 1,669 1,403 932 75,196

2005–06 26,951 19,992 14,819 7,962 6,351 1,775 1,506 1,034 80,389

(b) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

1996–97 17,582 13,073 9,122 4,606 3,809 1,441 930 578 51,140

1997–98 18,155 13,431 9,460 5,018 3,979 1,383 946 639 53,011

1998–99 19,562 13,782 9,724 5,100 4,284 1,374 1,087 641 55,554

1999–00 20,045 14,752 10,357 5,437 4,596 1,466 1,230 707 58,589

2000–01 21,311 16,263 11,555 6,000 4,889 1,562 1,113 741 63,432

2001–02 22,242 17,088 11,644 6,234 5,070 1,764 1,188 762 65,994

2002–03 22,987 18,063 12,203 6,787 5,470 1,622 1,265 832 69,229

2003–04(c) 24,335 17,881 12,760 7,107 5,732 1,613 1,328 886 71,641

2004–05 25,440 18,825 13,431 7,519 5,977 1,669 1,403 932 75,196

2005–06 25,869 19,216 14,264 7,655 6,105 1,707 1,446 992 77,254

2003–04 to

2005–06 6.3 7.5 11.8 7.7 6.5 5.8 8.9 12.0 7.8

(b) Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

16

1996–97 2,161 2,176 2,104 2,008 2,037 2,410 2,442 2,140

1997–98 2,258 2,276 2,190 2,199 2,143 2,353 2,685 2,243

1998–99 2,471 2,374 2,271 2,257 2,349 2,409 2,731 2,385

1999–00 2,571 2,577 2,432 2,428 2,564 2,614 3,040 2,548

2000–01 2,766 2,884 2,723 2,702 2,773 2,839 3,215 2,790

2001–02 2,993 3,144 2,830 2,908 2,995 3,338 3,439 3,009

2002–03 3,185 3,404 2,999 3,240 3,320 3,162 3,865 3,232

2003–04(d) 3,480 3,456 3,174 3,467 3,582 3,221 4,240 3,430

2004–05 3,779 3,750 3,395 3,759 3,864 3,443 4,563 3,709

2005–06 3,970 3,927 3,660 3,905 4,070 3,633 4,954 3,965

2005–06 0.1 –1.0 –7.7 –1.5 2.7 –8.4 25.0

(b) Based on annual mean resident population (see Appendix G).

(c) ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents. Thus

the ACT population is not the appropriate denominator.

(d) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

0

1,000

2,000

3,000

4,000

5,000

6,000

NSW Vic Qld WA SA Tas NT Aust

(a) Based on annual mean resident population (see Appendix G).

(b) ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW

residents. Thus the ACT population is not the appropriate denominator.

17

1996–97 2,816 2,854 2,708 2,586 2,577 3,037 3,136 2,776

1997–98 2,878 2,908 2,764 2,774 2,678 2,924 3,393 2,847

1998–99 3,068 2,956 2,799 2,776 2,868 2,912 3,349 2,952

1999–00 3,108 3,128 2,933 2,918 3,060 3,108 3,639 3,077

2000–01 3,263 3,406 3,215 3,177 3,241 3,312 3,769 3,289

2001–02 3,367 3,534 3,171 3,257 3,343 3,735 3,840 3,378

2002–03 3,455 3,690 3,239 3,501 3,583 3,415 4,170 3,500

2003–04(d) 3,636 3,608 3,303 3,611 3,731 3,356 4,409 3,577

2004–05 3,779 3,750 3,395 3,759 3,864 3,443 4,563 3,709

2005–06 3,810 3,775 3,523 3,755 3,912 3,495 4,752 3,758

(a) Based on annual mean resident population (see Appendix G).

(b) Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.

(c) ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents.

Thus the ACT population is not the appropriate denominator.

(d) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

The per person recurrent health expenditure estimates must be treated with caution as the

expenditure estimates often include costs of interstate patients, whereas the population used

for the calculation is the resident population of the state.

This state-based health expenditure data include estimates of expenditure that have been

funded by sources other than the state and territory governments. These include funding by

the Australian Government, private health insurance funds, individuals (through

out-of-pocket payments) and providers of injury compensation cover. This means that these

estimates of expenditure within a state are not limited to the areas of responsibility of state

and territory governments.

On a per person basis, in 2005–06, the estimated national average level of recurrent

expenditure on health was $3,965 per person (current prices). In 2005–06, Tasmania ($3,633)

had the lowest average level of expenditure—8.4% below the national average (Table 9 and

Figure 4). In 1996-97, Tasmania was 12.6% above the national average (calculated from

Table 9). The Northern Territory ($4,954) had 25% higher per person expenditure than the

national average in 2005–06 (Table 9). New South Wales, Victoria and Western Australia were

within 2% of the national average.

Average annual real growth in recurrent health expenditure per person over the period

2003–04 to 2005–06 was highest in the Northern Territory (3.8%) and lowest in Western

Australia and Tasmania (both 2.0%). The national average for that period was 2.5% (Table 11).

To the greatest extent possible, the AIHW has applied consistent methods to derive estimates

for the different states and territories. But there will be differences from one jurisdiction to

another in the quality of the data on which these estimates are based. This means that, while

some broad comparisons can be made, caution should be exercised when comparing the

results for jurisdictions.

18

1996–97 to 1997–98 2.2 1.9 2.1 7.3 3.9 –3.7 8.2 2.6

1997–98 to 1998–99 6.6 1.6 1.3 0.1 7.1 –0.4 –1.3 3.7

1998–99 to 1999–00 1.3 5.8 4.8 5.1 6.7 6.8 8.7 4.2

1999–00 to 2000–01 5.0 8.9 9.6 8.9 5.9 6.6 3.6 6.9

2000–01 to 2001–02 3.2 3.7 –1.4 2.5 3.2 12.8 1.9 2.7

2001–02 to 2002–03 2.6 4.4 2.2 7.5 7.2 –8.6 8.6 3.6

2002–03 to 2003–04 . . . . . . . . . . . . . . . .

2003–04 to 2004–05 3.9 4.0 2.8 4.1 3.6 2.6 3.5 3.7

2004–05 to 2005–06 0.8 0.6 3.8 –0.1 1.2 1.5 4.1 1.3

1997–98 to 2002–03(e) 3.7 4.9 3.2 4.8 6.0 3.2 4.2 4.2

2003–04 to 2005–06(e) 2.4 2.3 3.3 2.0 2.4 2.0 3.8 2.5

(b) Based on annual mean resident population (see Appendix G).

(c) Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.

(d) ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents.

Thus the ACT population is not the appropriate denominator.

(e) Australian Health Care Agreement periods.

Expenditure on hospitals accounted for the largest proportion of real growth in recurrent

health expenditure between 2003–04 and 2005–06 (42.0%)—public hospital services (37.8%)

and private hospitals (4.2%). Expenditure on medications accounted for 16.5% of the growth

and medical services accounted for 13.8% (calculated from Table 20). Most of the growth in

medication expenditure occurred in 2003–04 (7.8% growth on previous year) and 2004–05

(7.1% growth), with just 1.6% growth in this area in 2005–06 (Table 20). Together, these three

areas of expenditure accounted for 72% of the growth in expenditure during the last three

years (calculated from Table 20). The combined expenditure of these three areas as a

percentage of GDP rose in real terms from 5.9% in 2003–04 to 6.0% in 2005–06 (calculated from

Tables 3 and 20).

The nominal (current price) growth in health expenditure can be analysed in terms of

population growth, inflation and the real increase in expenditure per person. Real increase in

expenditure per person is indicative of increases in service use per person.

19

Two factors contribute to nominal growth in health expenditure:

• the combined effects of general inflation and excess health inflation

• changes in the quantities of services used, reflecting either population growth

(less significant in Australia’s case) or more intensive per capita use of services.

Underlying these two factors are the effects of changes in the population’s age structure,

changes in the composition and relative prices of health goods and services, changes in

technology and medical practice and general economic and social conditions.

Nominal health expenditure grew from $39.0 billion in 1995–96 to $86.9 billion in 2005–06

(Table 1). Of the $47.8 billion increase, 40.2% ($19.2 billion) was due to inflation,

15.3% ($7.3 billion) was from population growth and 44.5% ($21.3 billion) was due to an

increase in real expenditure per person. The interactions between the three growth elements

have been allocated in proportion to the size of each growth element.

20

This section makes broad comparisons between government and non-government funding

(as described in Section 1.2). Sections 3.2 and 3.3 discuss in more detail the funding

arrangements within the government and non-government sectors. Chapter 4 provides an

analysis of funding of specific classes of health goods and services (including capital).

In 2005–06, government funding of health expenditure was $58.9 billion (67.8%), with the

Australian Government contributing $37 billion (42.9%) and state, territory and local

governments contributing $22 billion (24.9%). The non-government sector (households,

private health insurance and other non-government) funded the remaining $28 billion (32.2%)

(Tables 12 and 13). In current prices, from 2004-05 to 2005-06, Australian Government funding

of health expenditure increased by 4.7% ($1,675 million), state, territory and local

governments funding increased by 11.9% ($2,309 million) and non-government funding

increased by 6.8% ($1,771 million).

After allowing for inflation, real growth in Australian Government funding of health grew by

an average of 4.9% a year from 1995-96 to 2005-06, state and territory government funding

grew by 6.2% and non-government funding grew by 4.5% a year (Table 21).

In 2005–06, the Australian Government’s total funding grew, in real terms, by 0.7%, state,

territory and local governments funding grew by 7.6% and non-government funding grew by

2.9% (Table 21).

From 1995–96 to 2005–06, the relative shares of funding of total health expenditure remained

fairly stable for both the government and non-government sectors (Table 13 and Figure 5).

Around two-thirds of funding was provided by governments and one-third by

non-government.

21

1995–96 16,847 9,037 25,884 13,162 39,047

1996–97 17,354 10,357 27,711 14,405 42,116

1997–98 18,852 11,332 30,184 14,618 44,802

1998–99 21,015 11,519 32,534 15,968 48,502

1999–00 23,183 12,969 36,152 16,290 52,442

2000–01 25,849 13,567 39,417 18,871 58,287

2001–02 27,700 14,564 42,264 21,184 63,448

2002–03 29,960 16,512 46,472 22,460 68,932

2003–04(b) 31,998 17,761 49,759 24,186 73,945

2004–05 35,554 19,337 54,891 26,233 81,125

2005–06 37,229 21,646 58,875 28,004 86,879

(a) Funding of expenditure has been adjusted for non-specific tax expenditures.

(b) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical

notes for further information).

The relative shares of health expenditure funding by the different levels of government varied

over the decade. The Australian Government contribution varied from a low of 41.2%in

1996–97 to a high of 44.3% in 2000–01 and ended at 42.9% in 2005–06 (Table 13). Over the same

period, the contribution from state, territory and local governments fluctuated between 23.1%

in 1995–96 and a high of 25.3% in 1997–98.

1995–96 43.1 23.1 66.3 11.3 15.6 6.8 33.7 100.0

1996–97 41.2 24.6 65.8 11.2 16.4 6.6 34.2 100.0

1997–98 42.1 25.3 67.4 9.5 16.3 6.8 32.6 100.0

1998–99 43.3 23.8 67.1 7.9 17.2 7.8 32.9 100.0

1999–00 44.2 24.7 68.9 6.9 16.7 7.5 31.1 100.0

2000–01 44.3 23.3 67.6 7.1 18.0 7.3 32.4 100.0

2001–02 43.7 23.0 66.6 8.0 18.1 7.3 33.4 100.0

2002–03 43.5 24.0 67.4 7.9 17.3 7.4 32.6 100.0

2003–04 43.3 24.0 67.3 7.8 17.4 7.5 32.7 100.0

2004–05 43.8 23.8 67.7 7.4 17.3 7.6 32.3 100.0

2005–06 42.9 24.9 67.8 7.2 17.4 7.6 32.2 100.0

(a) Funding of expenditure has been adjusted for non-specific tax expenditures.

22

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1995–96

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

(a) Includes funding by injury compensation insurers.

Health funding can also be expressed as a proportion of GDP. Over the decade from 1995–96

to 2005–06, the Australian Government increased its share from 3.3% to 3.9% of GDP. For

state, territory and local governments, the proportion increased from 1.7% to 2.2%.

Non-government sources increased their share of GDP from 2.5% to 2.9% (Table 14).

1995–96 3.3 1.7 5.0 2.5 7.5

1996–97 3.2 1.9 5.1 2.6 7.7

1997–98 3.3 2.0 5.2 2.5 7.8

1998–99 3.5 1.9 5.4 2.6 8.0

1999–00 3.6 2.0 5.6 2.5 8.1

2000–01 3.8 2.0 5.7 2.7 8.5

2001–02 3.8 2.0 5.7 2.9 8.6

2002–03 3.8 2.1 5.9 2.9 8.8

2003–04 3.8 2.1 5.9 2.9 8.8

2004–05 4.0 2.2 6.1 2.9 9.0

2005–06 3.9 2.2 6.1 2.9 9.0

(a) Funding of expenditure has been adjusted for non-specific tax expenditures.

23

In real terms, recurrent funding of health grew by an average of 4.8% a year from 1995–96

($48.4 billion) to 2005–06 (($77.3 billion) (Table 20). The government sector’s recurrent funding

grew by 5.2% per year (from $31.8 billion in 1995–06 to $53.0 billion in 2005–06), while

non-government recurrent funding grew by 3.9% ($16.6 billion to $24.3 billion)

(Tables 18 and 19). These growth rates are similar to those for government (5.4%) ($33.5 billion

to $56.6 billion) and non-government funding (4.5%) ($17.4 billion to $27.0 billion) of total

health expenditure (Table 21).

Medications experienced the highest real growth in total recurrent funding between 1995–96

and 2005–06 (averaging 8.6% per year) ($5.0 billion to $11.4 billion). Private hospitals

experienced a growth of 4.5% ($4.1 billion to $6.4 billion) whereas medical services had a

growth of 2.6% ($11.3 billion to $14.7 billion) (Table 20).

Between 1995–96 and 2005–06, the areas that attracted the most rapid real growth in

government funding were private hospitals (averaging 21.3% per year) ($381 million to

$2.6 billion) and medications (9.1%) ($2.6 billion to $6.1 billion) (Table 18). The growth in

government funding of private hospitals was mostly due to the Australian government

introducing subsidies for private health insurance. The increased use of private hospitals by

veterans funded by the Department of Veterans’ Affairs (DVA) also contributed. During this

period total government funding of recurrent health expenditure grew, in real terms, at a

similar rate (averaging 5.2% per year) ($31.8 billion to $53.0 billion) to growth for total funding

of recurrent health expenditure (4.8%) ($48.4 billion to $77.3 billion) (Tables 18 and 20).

In 2005–06, public hospital services and medical services received the highest amounts of

government funding for recurrent expenditure ($22.5 billion and $12.2 billion respectively)

(Table 15). In contrast, dental services and other health practitioners received $995 million and

$711 million respectively.

The areas that attracted the fastest real growth in funding by non-government sources

between 1995–96 and 2005–06 were medications, averaging 8.0% per year ($2.4 billion to

$5.2 billion) and medical services, averaging 4.5% per year ($2.0 billion to $3.1 billion)

(Table 19).

Non-government funding for private hospitals fluctuated over the decade with declines in

some years when government funding for private hospitals increased significantly, and

growth in other years—overall an average annual increase of 0.1% per year compared to an

average annual increase of 4.5% per year for all funding (Tables 19 and 20).

For the decade to 2005–06, total non-government funding of recurrent health expenditure

grew, in real terms, by 3.9% ($16.6 billion to $24.3 billion) compared with 4.8% growth

($48.4 billion to $77.3 billion) for total funding of recurrent health expenditure

(Tables 19 and 20).

In 2005–06, medications and dental services received the highest amounts of non-government

funding for recurrent expenditure ($5.4 billion and $4.3 billion respectively) (Table 16).

Other health practitioners received $2.3 billion.

24

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Public hospital

services(a)

Private hospitals

Medical

services

Dental services

Other health

practitioners

Community and

public health

Medications

Aids and

appliances

Other health(b)

Non-government (total $25,246 million)

State/territory and local governments (total $18,514 million)

Australian Government (total $36,629 million)

(a) Public hospital services excludes dental services, community health services, patient transport services, public health and health

research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or

other services.

(b) Other health comprises patient transport services, administration and research.

25

1995–96 10,477 . . 295 . . 6,497 . . 356 . . 195 . . 2,515 . . 3,904 . . 24,239 . .

1996–97 11,412 8.9 354 20.1 6,713 3.3 394 10.6 203 3.9 2,729 8.5 4,082 4.6 25,887 6.8

1997–98 12,449 9.1 630 78.0 6,977 3.9 424 7.6 227 11.7 2,802 2.7 4,498 10.2 28,007 8.2

1998–99 13,246 6.4 1,003 59.1 7,392 5.9 489 15.3 272 20.1 3,093 10.4 4,800 6.7 30,295 8.2

1999–00 13,826 4.4 1,404 39.9 7,974 7.9 640 31.0 322 18.3 3,537 14.3 5,961 24.2 33,663 11.1

2000–01 14,597 5.6 1,664 18.6 8,320 4.3 669 4.5 525 63.2 4,397 24.3 6,509 9.2 36,682 9.0

2001–02 15,755 7.9 1,783 7.1 8,958 7.7 742 10.9 563 7.1 4,728 7.5 6,938 6.6 39,466 7.6

2002–03 17,594 11.7 2,243 25.8 9,390 4.8 784 5.7 618 9.9 5,225 10.5 7,750 11.7 43,604 10.5

Break in

time

series

2003–04 19,162 . . 2,357 5.1 9,965 6.1 834 . . 694 9.1 5,735 9.8 8,117 . . 46,843 7.4

2004–05 20,631 7.7 2,550 8.2 11,589 16.3 923 10.6 641 -4.9 6,051 5.5 9,194 13.3 51,579 10.1

2005–06 22,479 9.0 2,751 7.9 12,239 5.6 995 7.8 711 10.8 6,117 1.1 9,850 7.1 55,143 6.9

1995–96 to 2002–03 7.7 33.6 5.4 11.9 17.9 11.0 10.3 8.8

2003–04 to 2005–06 8.3 8.0 10.8 9.2 2.7 3.3 10.2 8.5

1995–96 to 2005–06 . . 25.0 6.5 . . 13.8 9.3 . . 8.6

(a) Not adjusted for non-specific tax expenditures.

(b) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental and patient transport services, community and public health components of other health.

(c) Public hospital expenditure includes expenditure on dental services, community health services, patient transport services, public health and health research undertaken by the hospital.

(d) From 2000–01, it includes DVA funding for other health practitioners and DoHA funding of hearing services (audiology component) which was previously included in other health.

(e) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(f) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

26

1995–96 1,041 . . 2,888 . . 1,375 . . 2,017 . . 1,155 . . 2,142 . . 1,797 . . 12,415 . .

1996–97 1,068 2.7 3,139 8.7 1,485 8.0 2,157 6.9 1,386 20.0 2,402 12.1 1,908 6.2 13,546 9.1

1997–98 1,004 –6.1 3,028 –3.5 1,560 5.1 2,167 0.5 1,274 –8.1 2,777 15.6 1,942 1.8 13,752 1.5

1998–99 1,093 8.9 2,956 –2.4 1,653 6.0 2,191 1.1 1,291 1.3 3,004 8.2 2,409 24.0 14,597 6.1

1999–00 1,099 0.6 2,800 –5.3 1,734 4.9 2,246 2.5 1,263 –2.2 3,317 10.4 2,406 –0.1 14,865 1.8

2000–01 1,249 13.6 2,857 2.0 1,884 8.6 2,782 23.9 1,378 9.1 3,741 12.8 3,237 34.5 17,127 15.2

2001–02 1,408 12.8 3,246 13.6 2,243 19.0 3,272 17.6 1,627 18.1 4,321 15.5 3,208 –0.9 19,326 12.8

2002–03 1,367 –3.0 3,262 0.5 2,612 16.5 3,523 7.6 1,842 13.2 4,221 –2.3 3,512 9.5 20,337 5.2

Break in

time

series

2003–04 1,275 . . 3,601 10.4 2,937 12.5 3,811 . . 1,974 . . 4,551 7.8 3,689 . . 21,839 7.4

2004–05 1,460 14.5 3,777 4.9 3,057 4.1 4,141 8.6 2,151 8.9 5,115 12.4 3,917 6.2 23,617 8.1

2005–06 1,840 26.0 3,932 4.1 3,261 6.7 4,342 4.9 2,324 8.1 5,384 5.3 4,163 6.3 25,246 6.9

1995–96 to 2002–03 4.0 1.8 9.6 8.3 6.9 10.2 10.0 7.3

2003–04 to 2005–06 20.1 4.5 5.4 6.7 8.5 8.8 6.2 7.5

1995–96 to 2005–06 . . 3.1 9.0 . . . . 9.7 . . 7.4

(a) Not adjusted for non-specific tax expenditures.

(b) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental and patient transport services, community, and public health components of other health.

(c) Public hospital expenditure includes expenditure on dental and patient transport services, community health services, public health and health research undertaken by the hospital.

(d) Different methods were used to estimate non-government funding of other health practitioners between 1995–96 and 2002–03 as compared to 2003–04 to 2005–06, so comparisons

should be done with care.

(e) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(f) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

27

1995–96 11,518 . . 3,183 . . 7,872 . . 2,373 . . 1,350 . . 4,657 . . 5,701 . . 36,654 . .

1996–97 12,480 8.4 3,493 9.7 8,198 4.1 2,551 7.5 1,589 17.7 5,131 10.2 5,990 5.1 39,433 7.6

1997–98 13,453 7.8 3,659 4.7 8,537 4.1 2,591 1.6 1,500 –5.6 5,579 8.7 6,440 7.5 41,759 5.9

1998–99 14,339 6.6 3,959 8.2 9,045 5.9 2,680 3.4 1,563 4.2 6,097 9.3 7,209 11.9 44,892 7.5

1999–00 14,925 4.1 4,204 6.2 9,708 7.3 2,886 7.7 1,585 1.4 6,854 12.4 8,367 16.1 48,528 8.1

2000–01 15,846 6.2 4,521 7.6 10,204 5.1 3,452 19.6 1,903 20.1 8,138 18.7 9,746 16.5 53,810 10.9

2001–02 17,163 8.3 5,029 11.2 11,201 9.8 4,014 16.3 2,189 15.1 9,049 11.2 10,146 4.1 58,792 9.3

2002–03 18,961 10.5 5,504 9.4 12,002 7.2 4,306 7.3 2,460 12.4 9,446 4.4 11,262 11.0 63,941 8.8

Break in

time

series

2003–04 20,437 . . 5,958 8.2 12,902 7.5 4,645 . . 2,649 . . 10,286 8.9 11,805 . . 68,682 7.4

2004–05 22,091 8.1 6,327 6.2 14,646 13.5 5,064 9.0 2,792 5.4 11,166 8.6 13,111 11.1 75,196 9.5

2005–06 24,319 10.1 6,683 5.6 15,499 5.8 5,337 5.4 3,035 8.7 11,501 3.0 14,014 6.9 80,389 6.9

1995–96 to 2002–03 7.4 8.1 6.2 8.9 9.0 10.6 10.2 8.3

2003–04 to 2005–06 9.1 5.9 9.6 7.2 7.0 5.7 9.0 8.2

1995–96 to 2005–06 . . 7.7 7.0 . . . . 9.5 . . 8.2

(a) Not adjusted for non-specific tax expenditures.

(b) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental services and patient transport services, community and public health components of other health.

(c) Public hospital expenditure includes expenditure on dental services, community health services, patient transport services, public health and health research undertaken by the hospital.

(d) Different methods were used to estimate non-government funding of other health practitioners between 1995–96 and 2002–03 as compared to 2003–04 to 2005–06, so comparisons

should be done with care.

(e) From 2000–01, it includes DVA funding for other health practitioners and DoHA funding of hearing services (audiology component) which was previously included in other health.

(f) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(g) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

28

1995–96 13,536 . . 381 . . 9,361 . . 538 . . 302 . . 2,560 . . 5,141 . . 31,819 . .

1996–97 14,489 7.0 449 17.8 9,510 1.6 571 6.1 298 –1.2 2,773 8.3 5,303 3.2 33,393 4.9

1997–98 15,506 7.0 785 74.8 9,714 2.1 594 4.1 311 4.4 2,842 2.5 5,765 8.7 35,518 6.4

1998–99 16,057 3.6 1,216 54.9 10,026 3.2 661 11.1 363 16.8 3,116 9.6 5,978 3.7 37,417 5.3

1999–00 16,389 2.1 1,664 36.8 10,527 5.0 822 24.4 418 14.9 3,556 14.1 7,228 20.9 40,603 8.5

2000–01 17,306 5.6 1,973 18.6 10,524 — 817 –0.6 641 53.4 4,422 24.3 7,682 6.3 43,364 6.8

2001–02 17,516 1.2 1,982 0.4 10,714 1.8 861 5.4 628 –2.0 4,747 7.4 7,840 2.1 44,288 2.1

2002–03 18,913 8.0 2,409 21.5 10,657 –0.5 870 1.1 651 3.6 5,239 10.4 8,425 7.5 47,164 6.5

Break in

time

series

2003–04 19,877 . . 2,443 1.4 10,738 0.8 887 . . 694 6.6 5,749 9.7 8,457 . . 48,845 3.6

2004–05 20,631 3.8 2,550 4.4 11,589 7.9 923 4.0 641 –7.5 6,051 5.3 9,194 8.7 51,579 5.6

2005–06 21,559 4.5 2,639 3.5 11,590 — 956 3.6 678 5.8 6,103 0.9 9,445 2.7 52,969 2.7

1995–96 to 2002–03 4.9 30.1 1.9 7.1 11.6 10.8 7.3 5.8

2003–04 to 2005–06 4.1 3.9 3.9 3.8 –1.1 3.0 5.7 4.1

1995–96 to 2005–06 . . 21.3 2.2 . . 8.4 9.1 . . 5.2

(a) Not adjusted for non-specific tax expenditures.

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental services and patient transport services, community and public health components of other health.

(d) Public hospital expenditure includes expenditure on dental services, community health services, patient transport services, public health and health research undertaken by the hospital.

(e) From 2000–01, it includes DVA funding for other health practitioners and DoHA funding of hearing services (audiology component) which was previously included in ‘other health’.

(f) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(g) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

29

1995–96 1,344 . . 3,731 . . 1,981 . . 3,047 . . 1,785 . . 2,435 . . 2,289 . . 16,613 . .

1996–97 1,359 1.0 3,992 7.0 2,104 6.2 3,140 3.0 2,048 14.7 2,718 11.6 2,388 4.3 17,747 6.8

1997–98 1,252 –7.9 3,775 –5.4 2,173 3.3 3,035 –3.3 1,766 –13.7 3,101 14.1 2,391 0.1 17,493 –1.4

1998–99 1,327 6.0 3,586 –5.0 2,243 3.2 2,966 –2.3 1,745 –1.2 3,353 8.1 2,917 22.0 18,136 3.7

1999–00 1,304 –1.7 3,320 –7.4 2,289 2.1 2,886 –2.7 1,651 –5.4 3,671 9.5 2,864 –1.8 17,985 –0.8

2000–01 1,482 13.6 3,387 2.0 2,383 4.1 3,385 17.3 1,685 2.0 4,024 9.6 3,722 30.0 20,068 11.6

2001–02 1,567 5.8 3,609 6.6 2,683 12.6 3,796 12.1 1,816 7.8 4,623 14.9 3,611 –3.0 21,706 8.2

2002–03 1,470 –6.2 3,506 –2.9 2,965 10.5 3,910 3.0 1,939 6.8 4,436 –4.0 3,840 6.3 22,065 1.7

Break in

time

series

2003–04 1,323 . . 3,734 6.5 3,166 6.8 4,054 . . 2,031 . . 4,677 5.4 3,810 . . 22,796 3.3

2004–05 1,460 10.4 3,777 1.1 3,057 –3.4 4,141 2.1 2,151 5.9 5,115 9.4 3,917 2.8 23,617 3.6

2005–06 1,765 20.9 3,771 –0.2 3,087 1.0 4,171 0.7 2,218 3.1 5,247 2.6 4,026 2.8 24,285 2.8

1995–96 to 2002–03 1.3 –0.9 5.9 3.6 1.2 9.0 7.7 4.1

2003–04 to 2005–06 15.5 0.5 –1.3 1.4 4.5 5.9 2.8 3.2

1995–96 to 2005–06 . . 0.1 4.5 . . . . 8.0 . . 3.9

(a) Not adjusted for non-specific tax expenditures.

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental services and patient transport services, community and public health components of other health.

(d) Public hospital expenditure includes dental services, community health services, patient transport services, public health and health research undertaken by the hospital.

(e) Different methods were used to estimate non-government funding of other health practitioners between 1995–96 and 2002–03 as compared to 2003–04 to 2005–06, so comparisons

should be done with care.

(f) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(g) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

30

1995–96 14,881 . . 4,113 . . 11,342 . . 3,585 . . 2,087 . . 4,995 . . 7,431 . . 48,433 . .

1996–97 15,848 6.5 4,441 8.0 11,614 2.4 3,710 3.5 2,346 12.4 5,491 9.9 7,691 3.5 51,140 5.6

1997–98 16,758 5.7 4,560 2.7 11,887 2.4 3,629 –2.2 2,078 –11.4 5,943 8.2 8,156 6.0 53,011 3.7

1998–99 17,384 3.7 4,802 5.3 12,268 3.2 3,626 –0.1 2,109 1.5 6,469 8.8 8,895 9.1 55,554 4.8

1999–00 17,693 1.8 4,984 3.8 12,816 4.5 3,708 2.2 2,069 –1.9 7,227 11.7 10,092 13.5 58,589 5.5

2000–01 18,788 6.2 5,360 7.5 12,907 0.7 4,202 13.3 2,325 12.4 8,446 16.9 11,404 13.0 63,432 8.3

2001–02 19,083 1.6 5,591 4.3 13,397 3.8 4,657 10.8 2,443 5.1 9,370 10.9 11,452 0.4 65,994 4.0

2002–03 20,383 6.8 5,915 5.8 13,622 1.7 4,780 2.6 2,589 6.0 9,676 3.3 12,265 7.1 69,229 4.9

Break in

time

series

2003–04 21,199 . . 6,177 4.4 13,904 2.1 4,942 . . 2,725 . . 10,426 7.8 12,267 . . 71,641 3.5

2004–05 22,091 4.2 6,327 2.4 14,646 5.3 5,064 2.5 2,792 2.5 11,166 7.1 13,111 6.9 75,196 5.0

2005–06 23,323 5.6 6,410 1.3 14,677 0.2 5,127 1.3 2,896 3.7 11,350 1.6 13,471 2.7 77,254 2.7

1995–96 to 2002–03 4.6 5.3 2.7 4.2 3.1 9.9 7.4 5.2

2003–04 to 2005–06 4.9 1.9 2.7 1.9 3.1 4.3 4.8 3.8

1995–96 to 2005–06 . . 4.5 2.6 . . . . 8.6 . . 4.8

(a) Not adjusted for non-specific tax expenditures.

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Public hospitals, dental services and other health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals and public hospital services

between 2002–03 and 2003–04 which affects public hospitals, dental services and patient transport services, community and public health components of other health.

(d) Public hospital expenditure includes dental services, community health services, patient transport services, public health and health research undertaken by the hospital.

(e) Different methods were used to estimate non-government funding of other health practitioners between 1995–96 and 2002–03 as compared to 2003–04 to 2005–06, so comparisons

should be done with care.

(f) From 2000–01, it includes DVA funding for other health practitioners and DoHA funding of hearing services (audiology component) which was previously included in ‘other health’.

(g) Other health comprises patient transport services, community health, public health, aids and appliances, other non-institutional health n.e.c., administration and research.

(h) Public hospital services excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services provided off the

hospital site such as hospital in the home dialysis or other services.

31

1995–96 22,114 . . 11,423 . . 33,537 . . 17,411 . . 50,948 . .

1996–97 22,388 1.2 12,950 13.4 35,338 5.4 18,677 7.3 54,015 6.0

1997–98 23,926 6.9 13,897 7.3 37,823 7.0 18,443 –1.3 56,266 4.2

1998–99 25,959 8.5 13,787 –0.8 39,746 5.1 19,647 6.5 59,393 5.6

1999–00 28,023 7.9 15,199 10.2 43,221 8.7 19,565 –0.4 62,786 5.7

2000–01 30,465 8.7 15,709 3.4 46,174 6.8 21,916 12.0 68,090 8.4

2001–02 31,069 2.0 16,095 2.5 47,164 2.1 23,638 7.9 70,802 4.0

2002–03 32,402 4.3 17,682 9.9 50,083 6.2 24,251 2.6 74,334 5.0

2003–04(c) 33,400 3.1 18,425 4.2 51,826 3.5

25,210 4.0 77,036 3.6

2004–05 35,554 6.4 19,337 4.9 54,891 5.9 26,233 4.1 81,125 5.3

2005–06 35,804 0.7 20,816 7.6 56,620 3.1 26,982 2.9 83,601 3.1

1995–96 to 1997–98 4.0 10.3 6.2 2.9 5.1

1997–98 to 2002–03 6.3 4.9 5.8 5.6 5.7

1995–96 to 2005–06 4.9 6.2 5.4 4.5 5.1

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Expenditure has been adjusted for non-specific tax expenditures.

(c) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further information).

32

In 2005–06, government funding of total health expenditure was $58.9 billion (Table A3). The

Australian Government contributed $37.2 billion (Table 22) which was 42.9% of total funding

for health by all sources of funds (Table 13 and Figure 5). State, territory and local

government sources provided 24.9%.

In 2005–06, the Australian Government provided 63.2% of total government health funding

(calculated from Table 12).

The Australian Government’s contribution to funding for health includes:

• payments through DVA in respect of eligible veterans and their dependants

• specific purpose payments (SPPs) to the states and territories for health purposes

• direct expenditure by the Australian Government on health programs (such as Medicare

and PBS)

• taxation expenditures.

1995–96 1,489 5,012 . . 10,255 91 16,847

1996–97 1,608 4,989 . . 10,644 113 17,354

1997–98 1,619 5,651 407 11,047 128 18,852

1998–99 1,904 6,201 963 11,801 145 21,015

1999–00 2,180 6,440 1,576 12,826 162 23,183

2000–01 2,371 6,996 2,031 14,278 173 25,849

2001–02 2,593 7,391 2,118 15,395 203 27,700

2002–03 2,836 8,095 2,306 16,498 225 29,960

2003–04 3,013 8,219 2,516 17,998 251 31,998

2004–05 3,162 8,840 2,827 20,435 290 35,554

2005–06 3,126 9,235 3,177 21,361 329 37,229

(a) Includes health insurance rebates claimed through the taxation system as well as rebates paid directly to health insurance funds

which enable them to reduce premiums charged.

DVA funding of health is through its purchase of health goods and services on behalf of

eligible veterans and their dependants. In 2005–06, its funding totalled $3,126 million

(Table 23). Almost half of this (48.6%) was for hospitals (public hospital services and private

hospitals).

33

Public hospital services(a) 684 21.9

Private hospitals 834 26.7

Patient transport services 96 3.1

Medical services 767 24.5

Dental services 86 2.7

Other health practitioners 132 4.2

Community health 2 —

Medications 468 15.0

Aids and appliances 1 —

Administration 55 1.8

Research 2 0.1

(a) Public hospital services excludes dental services, community health services, patient

transport, public health and health research undertaken by the hospital. Can include

services provided off the hospital site such as hospital in the home dialysis or other services.

Most of the SPPs by the Australian Government to state and territory governments were

provided under the Australian Health Care Agreements (AHCAs) between these two levels

of government. The payments were primarily directed to expenditure on public hospital

services in the states and territories. Another SPP that was regarded as funding of public

hospitals were payments for highly specialised drugs. The 30% rebate on private health

insurance was also included as funding by the Australian Government for public hospitals.

The Australian Government also provides funding to the states and territories through the

Public Health Outcome Funding Agreements (PHOFAs). The PHOFAs are bilateral funding

agreements between the Australian Government and each state and territory. They provide

broadbanded and specific purpose funding from the Australian Government to the states

and territories for a range of public health programs. The current PHOFAs cover five years,

from 2004–05 to 2008–09.

The Australian Government also funds health programs such as Medicare, the PBS, public

health, research, the Aboriginal community controlled health and substance use services,

and health expenditure-related capital consumption and expenditure. In 2005–06, the

Australian Government funded $21.4 billion of direct expenditure (Table 22).

There are two methods for claiming the 30% rebate on private health insurance premiums.

The first involves a reduced premium being charged by the private health insurance fund

(with a subsequent reimbursement to the fund by the Australian Government). The second is

34

where the private health insurance fund charges the full (non-rebated) premium and the

person paying the full premium claims the 30% rebate directly from the Australian

Government through the taxation system. This rebate was regarded as part of Australian

Government expenditures from 1997–98 onwards.

During 2005–06, the total value of the 30% rebate was $3.2 billion (Table 22). $3.0 billion was

in the form of subsidies to private health insurance funds with the balance provided in the

form of rebates to individuals through the taxation system.

The only tax expenditure included here is the medical expense tax rebate. This tax concession

is the tax rebate of 20 cents in the dollar that can be claimed in respect of health expenditures

that exceed a prescribed threshold. In 2005–06 that threshold was $1,500 per taxpayer. These

expenditures cannot be allocated to any particular area(s) of health expenditure so are

included ‘below the line’ in the health expenditure tables. In 2005–06, the total value of such

tax expenditures was $329 million (Tables 22 and 50).

State and territory governments are the main providers of publicly provided health goods

and services in Australia. Those goods and services are financed by a combination of SPPs

from the Australian Government, funding by the states and territories out of their own fiscal

resources, and funding from non-government sources (usually in the form of user fees).

In terms of the types of health goods and services funded by the states and territories and by

local government authorities, spending on public hospital services dominates, accounting for

66.8% ($12.4 billion) of recurrent funding provided by these government sources in 2005–06

(calculated from Table A3).

In real terms, funding for health by state, territory and local governments increased, by an

average of 6.2% per year between 1995–96 and 2005–06. In comparison, Australian

Government funding increased by 4.9% per year in this period (Table 21).

Non-government funding was 32.2% ($28 billion) of total funding in 2005–06 (Table 24). In

1997–98, non-government funding was 32.6%, a decrease of 1.6 percentage points from

1996–97. The fall after 1996–97 was largely due to Australian Government subsidies for

private health insurance. The effect of that subsidy is the benefits that paid for private health

goods and services used by insured people became jointly funded by the Australian

Government (through the contribution rebates) and the fund contributors. Since 2001–02,

the non-government share has averaged around 33.0%.

Most non-government funding for health goods and services in Australia comes from

out-of-pocket payments by individuals. This includes situations where individuals meet the

full cost of a service or good as well as where they share the funding of goods and services

with third-party payers—for example, private health insurance funds or the Australian

Government. Funding by individuals accounted for 53.9% ($15.1 billion) of estimated

non-government funding of health goods and services during 2005–06 (calculated from

Table 24). This was 17.4% of total funding of health expenditure. That proportion rose by

35

1.8 percentage points in the decade to 2005–06. Private health insurance funds provided

7.2% of total funding of health expenditure ($6.3 billion) in 2005–06, down from 11.3% in

1995–96. The remaining 7.6% ($6.6 billion) came from other non-government sources (mainly

compulsory motor vehicle third-party and workers’ compensation insurers) (Table 24).

Over the decade to 2005–06, non-government sector funding provided by private health

insurance funds decreased 4 percentage points from 11% to 7%, funding by individuals

increased by 2 percentage points from 15.6% to 17.4% and funding by other

non-government sources increased by 1 percentage point (Table 24).

The decrease in funding by private health insurance reflected the 30% rebate for private

health insurance from the Australian Government. Private health insurance benefits that

were previously funded almost entirely by private health insurance premiums were instead

funded 30% by the Australian Government. In 2005–06, 4% of total health expenditure was

funded by the Australian Government’s 30% rebate and 7% was funded through private

health insurance (calculated from Table A3).

1995–96 4,426 11.3 6,088 15.6 2,649 6.8 13,162 33.7

1996–97 4,700 11.2 6,910 16.4 2,795 6.6 14,405 34.2

1997–98 4,271 9.5 7,322 16.3 3,025 6.8 14,618 32.6

1998–99 3,855 7.9 8,338 17.2 3,774 7.8 15,968 32.9

1999–00 3,601 6.9 8,777 16.7 3,912 7.5 16,290 31.1

2000–01 4,123 7.1 10,511 18.0 4,237 7.3 18,871 32.4

2001–02 5,075 8.0 11,506 18.1 4,603 7.3 21,184 33.4

2002–03 5,415 7.9 11,932 17.3 5,112 7.4 22,460 32.6

2003–04(d) 5,790 7.8 12,861 17.4 5,535 7.5 24,186 32.7

2004–05 6,038 7.4 14,019 17.3 6,176 7.6 26,233 32.3

2005–06 6,284 7.2 15,086 17.4 6,634 7.6 28,004 32.2

(a) Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.

(b) Adjusted for non-specific tax expenditures.

(c) All non-government sector capital expenditure is included here, as the details of funding of non-government capital expenditure is not

known. If funding was known, this capital expenditure would be spread across all funding columns.

(d) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

36

Real growth in expenditure by individuals between 1995–96 and 2005–06 was 6.0% per year,

0.9 percentage points above the real growth in total health expenditure (5.1%)

(Tables 1 and 25).

1995–96 5,933 . . 8,115 . . 3,362 . . 17,411 . .

1996–97 6,162 3.9 9,018 11.1 3,497 4.0 18,677 7.3

1997–98 5,473 –11.2 9,232 2.4 3,738 6.9 18,443 –1.3

1998–99 4,808 –12.1 10,302 11.6 4,537 21.4 19,647 6.5

1999–00 4,376 –9.0 10,556 2.5 4,633 2.1 19,565 –0.4

2000–01 4,918 12.4 12,155 15.1 4,842 4.5 21,916 12.0

2001–02 5,726 16.4 12,861 5.8 5,052 4.3 23,638 7.9

2002–03 5,880 2.7 12,924 0.5 5,446 7.8 24,251 2.6

2003–04(e) 6,044 2.8 13,410 3.8 5,756 5.7 25,210 4.0

2004–05 6,038 –0.1 14,019 4.5 6,176 7.3 26,233 4.1

2005–06 6,022 –0.3 14,558 3.8 6,402 3.7 26,982 2.9

1995–96 to 1997–98 –4.0 6.7 5.4 2.9

1997–98 to 2002–03 1.4 7.0 7.8 5.6

1995–96 to 2005–06 0.1 6.0 6.7 4.5

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.

(c) Adjusted for non-specific tax expenditures.

(d) All non-government sector capital expenditure is included here, as the details of funding of non-government capital expenditure is not

known. If funding was known, this capital expenditure would be spread across all funding columns.

(e) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further

information).

In 2005–06, of the estimated $15.4 billion out-of-pocket recurrent expenditure by individuals

on health goods and services (Figure 7):

• 34.2% was spent on medications

– 8.0% on PBS and RPBS patient contributions

– 26.2% on other medications (see Table 65 for a detailed definition)

• 23.2% on dental services

• 13.4% on aids and appliances

• 11.3% on medical services

• 10.7% on other health practitioners (such as physiotherapists, chiropractors and

podiatrists, see Table 65 for full list).

37

Public hospital

services(b)

2.5%

Public health

0.3%

Benefit-paid

pharmaceuticals

8.0%

All other medications

26.2%

Aids and appliances

13.4%

Other health

practitioners

10.7%

Patient transport

services

1.4%

Private hospitals

1.8%

Medical services

11.3%

Dental services

23.2%

Community health

and other(c)

1.1%

(a) Individuals’ expenditure not adjusted for non-specific tax expenditures.

(b) Public hospital services excludes dental services, community health services, patient transport services, public health and health

research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or

other services.

(c) ‘Other’ refers to other non-institutional health services n.e.c.

In real terms, average out-of-pocket health expenditure per person grew by 4.8% per year

from 1995–96 to 2005–06 (Table 26). Over this period, benefit-paid pharmaceuticals had a real

growth of 8.1% per year compared to all other medications (6.5%). In contrast, average per

person out-of-pocket expenditure on medical services grew at just 3.0% per year.

38

1995–96 22 . . 8 . . 60 . . 120 . . 64 . . — . . 28 . . 101 . . 50 . . 453 . .

1996–97 31 45.1 9 6.2 63 5.0 123 2.4 78 21.3 — . . 30 9.8 112 10.8 51 2.7 498 9.9

1997–98 24 –23.2 9 8.7 68 7.6 121 –1.3 67 –14.2 — . . 32 6.7 130 16.1 53 3.2 505 1.5

1998–99 44 80.4 9 –1.7 70 3.3 121 0.2 62 –6.7 5 . . 34 3.8 140 7.5 72 36.0 557 10.3

1999–00 41 –5.4 10 4.7 69 –1.0 121 –0.7 59 –5.5 2 –53.4 36 7.1 151 8.3 75 4.5 565 1.4

2000–01 46 12.4 11 12.1 71 2.1 142 17.5 58 –2.0 — . . 40 12.4 162 7.1 111 47.6 641 13.5

2001–02 42 –9.0 12 6.3 73 3.4 153 8.3 61 6.1 — . . 43 6.9 186 14.8 99 –10.9 670 4.5

2002–03 25 –41.0 12 3.7 82 11.6 159 3.4 65 6.4 — . . 48 11.5 168 –9.7 107 8.2 666 –0.6

Break in

time series

2003–04 25 . . 9 . . 86 5.4 164 . . 70 . . 9 . . 52 7.6 176 4.7 92 . . 683 2.6

2004–05 23 –7.9 9 0.4 80 –7.0 168 2.4 74 6.8 8 –5.8 57 9.5 190 7.9 96 4.4 706 3.4

2005–06 31 34.7 10 4.6 80 0.5 167 –0.5 77 3.2 10 21.9 60 6.1 190 –0.1 98 2.5 723 2.5

1995–96 to 2002–03 2.0 5.7 4.5 4.1 0.2 . . 8.3 7.5 11.5 5.7

2003–04 to 2005–06 11.4 2.4 –3.4 0.9 5.0 7.2 7.8 3.8 3.4 2.9

1995–96 to 2005–06 . . . . 3.0 . . . . . . 8.1 6.5 . . 4.8

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices. Not adjusted for non-specific tax expenditures.

(b) Hospitals, patient transport services, dental services and community and public health are omitted from the 1995–96 to 2005–06 average annual growth rates due to differences in the definitions of public hospitals

and public hospital services between 2002–03 and 2003–04 which affects public hospitals, patient transport services, dental services and community and public health.

(c) Includes public and private hospitals. Public hospital expenditure (1995–96 to 2002–03) includes expenditure on dental services, community health services, patient transport services, public health and health research

undertaken by the hospital. Public hospital services (2003–04 to 2005–06) excludes dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can

include services provided off the hospital site such as hospital in the home dialysis or other services.

(d) Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further information).

(e) For 1999–00 this also includes administration expenditure.

39

Funding by private health insurance is chiefly directed towards private hospitals. During

2005–06, private hospitals received 48.6% ($3.1 billion) of the $6.3 billion in funding provided

by health insurance funds (Figure 8 and Table 27). Other major areas of expenditure that

received funding were dental services (12.1% or $760 million), administration (10.2% or

$639 million) and medical services (10.1% or $636 million). The funding for medical services

includes some of the cost of in-hospital medical services which are provided to private

admitted patients in hospitals. Patient transport services and medications received the least

funding from health insurance funds in 2005–06 ($92 million and $47 million respectively)

(Table 27).

Administration

10.2%

Private hospitals

48.6%

Public hospital

services(a)

6.5%

Other health

practitioners

6.1%

Dental services

12.1%

Medical services

10.1%

Other health(b)

6.4%

(a) Public hospital services excludes expenditure on dental services, community health services, patient transport services,

public health and health research undertaken by the hospital. Can include services provided off the hospital site such as

hospital in the home dialysis or other services.

Gross health benefits paid through the health insurance funds in 2005–06 amounted to

$8,499 million—up $526 million from $7,973 million in 2004–05 and up $1,044 million since

2003–04 (Table 27). A further $962 million was used to fund administration during 2005–06;

this showed a steady increase from $852 million in 2003–04 and $892 million in 2004–05. The

40

premium rebates paid by the Australian Government through the tax system or directly to

private health insurance funds increased from $2,256 million in 2003–04 to $2,854 million in

2005–06.

The reserves of the health insurance funds overall continued to increase in 2005–06, with the

operating profit before abnormals and extraordinary items rising from $447 million in

2003–04 to $984 million in 2005–06 (Table 28).

41

Hospitals 4,572 1,384 3,186 4,919 1,569 3,351 5,213 1,750 3,462

Public hospital services(b) 486 147 339 565 180 385 615 207 409

Private hospitals 4,086 1,237 2,848 4,354 1,388 2,966 4,598 1,544 3,054

Patient transport(c) 130 39 91 138 44 94 139 47 92

Medical services 789 239 550 868 277 591 957 321 636

Dental services 1,027 311 716 1,070 341 729 1,144 384 760

Other health practitioners 499 151 348 527 168 359 578 194 384

Community and public health 1 — 1 1 — — 1 — —

Medications 71 21 49 75 24 49 71 24 47

Aids and appliances 367 111 256 376 120 256 397 133 264

Health administration 852 258 594 892 284 607 962 323 639

Non-health ancillaries 46 14 32 16 5 11 15 5 10

Outstanding claims

adjustment 62 19 43 88 28 60 98 33 65

(a) The premium rebate is pro-rated across all categories (including change in provisions for outstanding claims). The rebate includes rebates paid through the tax system as well as rebates paid to funds

which directly reduce premiums.

(b) Public hospital services excludes expenditure on dental services, community health services, patient transport services, public health and health research undertaken by the hospital. Can include services

provided off the hospital site such as hospital in the home dialysis or other services.

(c) Includes the levy on private insurance funds in New South Wales to fund patient transport services.

42

Total cost of benefits(a) 7,525 8,238 8,753

State levies (patient transport services) 105 110 113

Management expenses 852 892 962

Contributions income 8,637 9,384 10,261

Other revenue 296 373 446

Operating profit (loss) before abnormals

and extraordinary items 447 626 984

(a) Includes adjustment to provisions for outstanding claims.

1995–96 5,933 . . . . . . . . . . 5,933 . .

1996–97 6,162 3.9 . . . . . . . . 6,162 3.9

1997–98 5,995 –2.7 319 . . 203 . . 5,473 –11.2

1998–99 6,010 0.3 979 206.8 223 10.1 4,808 –12.1

1999–00 6,289 4.6 1,681 71.8 232 3.9 4,376 –9.0

2000–01 7,340 16.7 2,213 31.6 209 –10.0 4,918 12.4

2001–02 8,115 10.6 2,196 –0.8 193 –7.4 5,726 16.4

2002–03 8,385 3.3 2,331 6.2 173 –10.4 5,880 2.7

2003–04 8,671 3.4 2,465 5.7 162 –6.6 6,044 2.8

2004–05 8,865 2.2 2,672 8.4 155 –4.1 6,038 –0.1

2005–06 9,066 2.3 2,888 8.1 156 0.7 6,022 –0.3

1995–96 to 1997–98 0.5 . . . . –4.0

1997–98 to 2002–03 6.9 48.9 –3.1 1.4

1995–96 to 2005–06 4.3 . . . . 0.1

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

rebates claimed through the taxation system.

43

After the introduction of the Australian Government Private Health Insurance Incentives

Scheme subsidy in 1997 there was a sharp drop in net funding by health insurance funds in

each year up to 1999–00, followed by an increase after the introduction of the lifetime health

cover arrangements in the September quarter of 2000. Net expenditure in real terms rose

from $5,726 million in 2001–02 to $6,044 million in 2003–04. It then dropped to $6,022 million

in 2005–06 which the private health insurance rebates rose to a high of $2,888 million in that

year (Table 29 and Figure 9).

The government rebates for private health insurance are assumed to impact on funding of

health in the year in which the rebates are paid. Thus the build-up in reserves due to the

operating profit of $984 million in 2005–06 (Table 28) is effectively paid for entirely out of

health insurance fund resources and not from government rebates. This is the reason for the

fall in net payments in 2005–06 from health insurance fund resources for health services of

0.3% (Table 29).

In 2005–06, it was estimated that health insurance funds spent on average $684 per person

covered on health (in 2004–05 prices). Fund contributors in South Australia on average

attracted the highest amount per person covered ($772) while people in the Northern

Territory attracted the least per person covered ($367). When comparing average annual

growth rates in constant prices over the period 1996–97 to 2005–06, all states and territories

recorded reductions in the amount spent through health insurance. Fund contributors in the

Northern Territory had the greatest decline in their per person expenditure of 4.9% per year

(Table 30).

1996–97 1,005 1,030 1,013 952 1,190 1,008 580 1,019

1997–98 921 951 936 888 1,078 903 525 936

1998–99 824 845 846 811 968 800 499 840

1999–00 635 679 672 684 775 646 399 667

2000–01 547 540 579 581 650 614 344 563

2001–02 631 628 685 676 765 707 419 655

2002–03 638 662 722 689 794 725 373 677

2003–04 666 681 751 699 795 753 392 698

2004–05 665 677 748 693 785 723 368 694

2005–06 649 684 733 664 772 729 367 684

1996–97 to 1997–98 –8.4 –7.7 –7.6 –6.8 –9.4 –10.4 –9.4 –8.1

1997–98 to 2002–03 –7.1 –7.0 –5.0 –5.0 –5.9 –4.3 –6.6 –6.3

1996–97 to 2005–06 –4.8 –4.5 –3.5 –3.9 –4.7 –3.5 –4.9 –4.3

(a) Based on persons registered with health insurance funds in each state and territory.

(b) Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Health insurance funding for ACT and NSW residents cannot be reliably separated so are presented as combined.

44

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1995–96

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

Net funding

Gross funding

Premium rebate

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

net payments from health insurance funds’ resources.

People with private health insurance cover typically incur some level of out-of-pocket

expenditure. In 2005–06, the proportion of the total cost of a hospital service (whether it was

a private patient service in a public hospital or a private hospital), that was paid by patients

with hospital cover was highest for those in the younger age groups and lowest for those in

the older age groups (Figure 10). For patients aged 0–14 years the average proportion paid

per person was 14.7% and this dropped to 6.5% for those aged 85 years or more.

The proportion of the total cost of an ancillary service that was paid by patients with

ancillary cover was higher than for hospital services—around half the total cost depending

on the age of the patient (Figure 11). In contrast to the proportion paid for hospital services,

the proportion of the cost of ancillary services increased with the age of the patient.

45

For patients aged 0–14 years the average proportion paid per person was 44.5% and this

increased to 59.0% for patients aged 85 years or more.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0–14 15–19 20–44 45–64 65–84 85+

Benefits paid

Out of pocket

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0–14 15–19 20–44 45–64 65–84 85+

Benefits paid

Out of pocket

46

In 2005–06 the total cost of a service increased as the age of the patient increased. For

example, the average fee charged for a hospital service to patients with hospital cover was

$142 for a patient aged 0–14 years and $3,691 for a patient aged 85 years or more (Table 31).

At the same time, the proportion of the total cost of a hospital service that was paid by

patients with hospital cover decreased as their age increased—for patients aged 0–14 years

the average proportion paid per person was 14.7% and this decreased to 6.5% for patients

aged 85 years or more (Figure 10). However, because of the increase in hospital service costs

for older patients, the out-of-pocket costs paid by persons aged 45 years or more with

hospital cover were higher than for those aged less than 45 years. For example, average

out-of-pocket costs for hospital services paid by patients with hospital cover were

$21 per person for those aged 0–14 years and $239 for persons aged 85 years or more with

hospital cover (Table 31).

The average out-of-pocket costs paid for hospital services by females aged between 15 and

64 years with private health insurance were higher than those paid by males in the same age

groups with similar types of insurance cover. For the older age groups (65 years or more)

out-of-pocket expenditures paid by males were higher than for females. Out-of-pocket costs

paid by females ranged from $18 per person with insurance in the 0–14 years age group to

$218 for those aged 85 years or more ($23 and $296 per person respectively for males)

(Table 31).

The greatest difference between the sexes in out-of-pocket expenditure on hospital services

for patients with hospital cover was in the age category 20–44 years. Females in this category

spent, on average, more than twice the rate of males ($113 and $50 respectively). This reflects

the higher outlays on hospital services faced by women in their child-bearing years.

The average per person out-of-pocket expenditure for ancillary services paid by female

patients with ancillary cover was higher than that paid by their male counterparts at all ages

except the 85 years and over age group. The difference was greatest in the age category

45–64 years, with an average per person amount paid for an ancillary service by male

patients of $331 and by female patients of $440. The average amount paid for ancillary

services by females with ancillary cover ranged from $118 per person in the 0–14 years age

group to $440 for those aged 45–64 years, after which it decreased to $380 for those aged

85 years or more. For ancillary services for male patients with ancillary cover, out-of pocket

expenditure increased with age, ranging from $103 per person in the 0–14 years age group to

$405 for those aged 85 years or more (Table 31).

47

Out of pocket 23 33 50 109 273 296

Benefits paid 132 154 220 700 2,475 3,748

Out of pocket 18 36 113 115 211 218

Benefits paid 111 180 623 710 2,121 3,345

Out of pocket 21 35 83 112 240 239

Benefits paid 122 167 434 705 2,286 3,452

Out of pocket 103 155 186 331 396 405

Benefits paid 132 182 191 309 347 286

Out of pocket 118 189 261 440 423 380

Benefits paid 142 215 263 398 376 262

Out of pocket 110 172 226 387 410 387

Benefits paid 137 198 230 355 362 269

In 2005–06, injury compensation insurers funded $1,935 million of expenditure on health

goods and services—$1,206 million by workers’ compensation insurers and $729 million by

motor vehicle third-party insurers (AIHW health expenditure database).

Over the period 1995–96 to 2005–06, expenditure by workers’ compensation insurers rose on

average by 2.3% per year while the annual increase over this decade was 4.3% for motor

vehicle third-party insurers (Table 32).

Expenditure on health funded by workers’ compensation and motor vehicle third-party

insurers is included in the ‘other non-government’ source of funds category in the main

health expenditure tables.

48

1995–96 911 . . 459 . . 1,370 . .

1996–97 915 0.5 516 12.4 1,431 4.5

1997–98 906 –1.1 495 –4.1 1,401 –2.2

1998–99 977 7.9 575 16.2 1,552 10.8

1999–00 995 1.9 581 1.0 1,576 1.6

2000–01 996 0.1 535 –7.8 1,532 –2.8

2001–02 1,007 1.1 682 27.3 1,689 10.3

2002–03 1,085 7.8 690 1.2 1,776 5.1

2003–04 1,156 6.5 630 –8.8 1,786 0.6

2004–05 1,126 –2.6 706 12.1 1,832 2.6

2005–06 1,148 1.9 697 –1.2 1,845 0.7

1995–96 to 1997–98 –0.3 3.8 1.1

1997–98 to 2002–03 3.7 6.9 4.9

1995–96 to 2005–06 2.3 4.3 3.0

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

49

Recurrent health expenditure in Australia is considered under two broad categories of health

goods and services—institutional services and non-institutional goods and services.

Institutional health expenditure includes:

• hospitals

• patient transport services.

Non-institutional health expenditure includes:

• ambulatory health services, such as those provided by doctors, dentists and other health

practitioners

• community health services and public health services

• health goods (medications and aids and appliances) provided to patients in the

community

• health-related expenditures, such as expenditure on health administration and research.

However, within these two categories of health goods and services there is substantial

overlap. Hospitals are part of institutional health services and medical services are part of

non-institutional health goods and services. In 2005–06, $3,986 million was spent on salaried

medical staff and visiting medical officers, but provided as part of public hospital services

(AIHW 2007a). Likewise, expenditures classified as medical services include medical services

provided to private patients in public and private hospitals.

50

Aids and appliances

3.5%

Administration

3.1%

Medications

14.3%

Research

2.4%

Public health

1.8%

Community health

and other(b)

4.9%

Other health

practitioners

3.8% Dental services

6.6%

Medical services

19.3%

Patient transport

services

1.8%

Hospitals(a)

38.6%

(a) Includes public hospital services and private hospitals. Public hospital services excludes dental services, community health

services, patient transport services, public health and health research undertaken by the hospital. Can include services

provided off the hospital site such as hospital in the home dialysis or other services. See Box 3 for more details.

(b) ‘Other’ refers to other non-institutional health services n.e.c.

More money is spent by hospitals, as the largest providers of health services, than other

health providers. In this report hospital expenditure is analysed by two categories:

• public hospitals

• private hospitals.

Public hospitals in this report include public psychiatric hospitals, which are public hospitals

However, as they comprise a relatively small component of total public hospital expenditure

and the definition of public psychiatric hospitals was inconsistent from state to state, they are

now included as part of total public hospitals.

51

52

1995–96 14,881 . . 4,113 . . 18,993 . .

1996–97 15,848 6.5 4,441 8.0 20,289 6.8

1997–98 16,758 5.7 4,560 2.7 21,318 5.1

1998–99 17,384 3.7 4,802 5.3 22,186 4.1

1999–00 17,693 1.8 4,984 3.8 22,677 2.2

2000–01 18,788 6.2 5,360 7.5 24,148 6.5

2001–02 19,083 1.6 5,591 4.3 24,675 2.2

2002–03 20,383 6.8 5,915 5.8 26,298 6.6

2003–04 21,087 3.5 6,177 4.4 27,264 3.7

2004–05 22,193 5.2 6,327 2.4 28,520 4.6

2005–06 23,409 5.5 6,410 1.3 29,819 4.6

1995–96 to 1997–98 6.1 5.3 5.9

1997–98 to 2002–03 4.0 5.3 4.3

1995–96 to 2005–06 4.6 4.5 4.6

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Includes dental services, community health services, patient transport services, public health and health research undertaken by the

hospital. See Box 3 for details on distinction between ‘public hospitals’ and ‘public hospital services’.

In real terms hospital expenditure—public (psychiatric and non-psychiatric) and private

hospitals—grew by 4.6% and 4.5% per year, respectively, between 1995–96 and 2005–06

(Table 33).

One important influence on expenditure on hospitals is the Australian Government’s policy

for funding hospital services. In the case of public hospitals, funding is affected by bilateral

agreements between the Australian Government and the various state and territory

governments (the AHCAs). Data from the first AHCA period and the first three years of the

second AHCA period are included in this publication. See Box 4 for the periods of all health

service funding agreements between the Australian Government and the state and territory

governments. Funding for hospitals is also influenced by the Australian Government’s

private health insurance initiatives, as private health insurance provides the bulk of funding

for private hospitals and for private patients in public hospitals.

53

Between 1997 and 2000 three major incentives relating to private health insurance were

introduced:

• in July 1997, the means-tested Private Health Insurance Incentives Scheme (PHIIS)

subsidy

• in January 1999, a non means-tested 30% rebate on private health insurance premiums,

which replaced the PHIIS subsidy

• in July 2000, the ‘Lifetime Health Cover’ initiatives to encourage more people to take out

and maintain private insurance cover.

Changes to ‘Lifetime Health Cover’ were announced in 2006 and these changes are being

implemented progressively from 2007. The Australian Government is also allowing insurers

to offer broader health cover products which expand hospital cover to outpatient and

out-of-hospital services.

From 1997–98 to 2002–03, public hospital expenditure grew at 4.0% per year. Private hospital

expenditure grew at 5.3% per year during the same period (Table 33).

The private hospital share of hospital expenditure increased from 21.7% of hospital

expenditure in 1995–96 to 22.7% in 2001–02, stabilised and then declined to 21.5% in 2005–06

(calculated from Table 33).

54

1995–96 37.4 35.9 73.3 17.8 9.0 26.7 100.0

1996–97 35.6 38.1 73.7 17.5 8.8 26.3 100.0

1997–98 38.2 38.2 76.4 14.7 8.9 23.6 100.0

1998–99 41.9 36.0 77.9 12.3 9.8 22.1 100.0

1999–00 43.8 35.8 79.6 10.5 9.9 20.4 100.0

2000–01 45.0 34.9 79.8 10.9 9.3 20.2 100.0

2001–02 44.0 35.0 79.0 12.4 8.6 21.0 100.0

2002–03 43.5 37.5 81.1 12.0 6.9 18.9 100.0

2003–04 42.6 38.0 80.6 12.1 7.2 19.4 100.0

2004–05 42.3 38.4 80.7 11.7 7.5 19.3 100.0

2005–06 40.6 40.5 81.1 11.1 7.8 18.9 100.0

(a) Includes dental services, community health services, patient transport services, public health and health research undertaken by public

hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.

In 2005–06, government accounted for the majority of funding for hospitals (81.1%)

(Table 34). Non-government sources contributed the remainder of the funding (18.9%).

Over the decade to 2005–06, governments increased their share of funding of hospitals

by 7.8 percentage points (Table 34). The Australian Government increased its share by

3.2 percentage points from 37.4% to 40.6%. The states and territories increased their share by

4.6 percentage points from 35.9% to 40.5% and the non-government funding of public and

private hospitals decreased from 26.7% in 1995-96 to 18.9% in 2005-06 (Table 34).

Of this 7.8 percentage point increase in the share of government funding over the decade,

5.6 percentage points was the effect of the Australian Government private health insurance

rebate scheme taking over some of the funding of private health insurance.

Expenditure on public psychiatric and non-psychiatric hospitals includes expenditure on

dental services, community health services, patient transport services, public health and

health research undertaken in a public hospital, in addition to expenditure on general

hospital treatment provided by public hospitals (see also Box 3).

It does not include the expenditure by public hospitals on services provided by private

hospitals for public patients. This expenditure is included as part of private hospital

expenditure.

More than 90% of funding for public hospitals comes from governments. The Australian

Government’s contribution—estimated at 41.4% in 2005–06 (Table 35)—was largely in the

form of SPPs under the AHCAs (Table 36). The states and territories, which have the major

responsibility for operating and regulating public hospitals that operate within their

jurisdictions, provided 50.6% of the funding for public hospitals in 2005–06.

55

Between 1995–96 and 2005–06, the Australian Government share of public hospital funding

decreased by 4 percentage points from 45% to 41%. State and territory government funding

during this period increased by 5 percentage points from, 46% to 51% (Table 35).

The non-government contribution declined over the decade from 9.0% in 1995–96 to 8.0% in

2005–06 (Table 35). In 2005–06, non-government funding consists of funding from private

health insurance (1.7%), individual out-of-pocket payments (1.1%), workers’ compensation

insurers and motor vehicle third-party insurers (1.1%) and other revenue (4.1%) (calculated

from source table for Table 35).

1995–96 5,203 45.2 5,274 45.8 1,041 9.0 11,518 100.0

1996–97 5,332 42.7 6,080 48.7 1,068 8.6 12,480 100.0

1997–98 5,905 43.9 6,543 48.6 1,004 7.5 13,453 100.0

1998–99 6,657 46.4 6,589 45.9 1,093 7.6 14,339 100.0

1999–00 6,979 46.8 6,847 45.9 1,099 7.4 14,925 100.0

2000–01 7,497 47.3 7,100 44.8 1,249 7.9 15,846 100.0

2001–02 7,986 46.5 7,769 45.3 1,408 8.2 17,163 100.0

2002–03 8,700 45.9 8,894 46.9 1,367 7.2 18,961 100.0

2003–04(b) 9,063 44.6 9,779 48.1 1,490 7.3 20,332 100.0

2004–05(b) 9,735 43.9 10,731 48.4 1,726 7.8 22,193 100.0

2005–06(b) 10,105 41.4 12,361 50.6 1,943 8.0 24,409 100.0

(a) Includes dental services, community health services, patient transport services, public health and health research undertaken by public

hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.

56

1995–96 4.0 41.2 . . — 45.2 45.8 91.0

1996–97 3.6 38.8 . . 0.4 42.7 48.7 91.4

1997–98 3.0 37.2 0.2 3.4 43.9 48.6 92.5

1998–99 3.5 39.5 0.4 3.0 46.4 45.9 92.4

1999–00 3.4 39.7 0.6 3.1 46.8 45.9 92.6

2000–01 3.3 39.8 0.7 3.5 47.3 44.8 92.1

2001–02 3.5 38.8 0.7 3.6 46.5 45.3 91.8

2002–03 3.7 38.2 0.7 3.4 45.9 46.9 92.8

2003–04 3.7 36.9 0.7 3.3 44.6 48.1 92.7

2004–05 3.7 35.7 0.8 3.7 43.9 48.4 92.2

2005–06 2.8 34.1 0.8 3.7 41.4 50.6 92.0

(a) Includes dental services, community health services, patient transport services, public health and health research undertaken by public

hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Includes DoHA direct expenditure on public hospitals, such as for blood sector payments and SPPs, excluding AHCAs, for public hospitals,

for example, for highly specialised drugs, hepatitis C funding, Health program and Positron emission tomography (PET) Scanner grants.

The share of funding for public (psychiatric and non-psychiatric) hospitals met by the two

major levels of government—Australian, and state and territory—fluctuates from year to

year. In the last 20 years a common pattern observed over time has seen the Australian

Government share of funding higher in the earlier years of the five-year health agreements

(see Box 4) and lower towards the end of the period—with state and territory governments

share of funding the reverse (Table 36). From the last year of the previous AHCAs to the first

year of the current AHCAs the Australian Government share funded through the AHCAs

fell—by 1.3 percentage points from 38.2% to 36.9%. Then it fell a further 2.8 percentage

points to 34.1% in the 2 years to 2005–06. There was a corresponding increase in the share

provided by the state and territory governments of 1.2 percentage points from 46.9% to

48.1% (from the last year of the previous AHCAs to the first year of the current AHCAs) and

then an increase of 2.5 percentage points to 50.6% in the 2 years to 2005–06 (Table 36).

57

1995–96 6,723 . . 6,813 . . 13,536 . . 1,344 . . 14,881 . .

1996–97 6,766 0.6 7,724 13.4 14,489 7.0 1,359 1.0 15,848 6.5

1997–98 7,354 8.7 8,152 5.5 15,506 7.0 1,252 –7.9 16,758 5.7

1998–99 8,072 9.8 7,986 –2.0 16,057 3.6 1,327 6.0 17,384 3.7

1999–00 8,274 2.5 8,115 1.6 16,389 2.1 1,304 –1.7 17,693 1.8

2000–01 8,889 7.4 8,417 3.7 17,306 5.6 1,482 13.6 18,788 6.2

2001–02 8,878 –0.1 8,638 2.6 17,516 1.2 1,567 5.8 19,083 1.6

2002–03 9,351 5.3 9,562 10.7 18,913 8.0 1,470 –6.2 20,383 6.8

2003–04 9,399 0.5 10,143 6.1 19,541 3.3 1,545 5.2 21,087 3.5

2004–05 9,735 3.6 10,731 5.8 20,466 4.7 1,726 11.7 22,193 5.2

2005–06 9,691 –0.5 11,854 10.5 21,545 5.3 1,864 7.9 23,409 5.5

1995–96 to

1997–98 4.6 9.4 7.0 –3.5 6.1

1997–98 to

2002–03 4.9 3.2 4.1 3.3 4.0

1995–96 to

2005–06 3.7 5.7 4.8 3.3 4.6

(a) Includes dental services, community health services, patient transport services, public health and health research undertaken by the

hospital. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(c) Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.

58

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1995–96

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

Australian Government

State/territory & local governments

Non-government

Australian Government AHCA

(a) Includes dental services, community health services, patient transport services, public health and health research

undertaken by the hospital. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

Expenditure on public hospital services differs from expenditure on public hospitals (see

Public hospital section above and Box 3). Expenditure on public hospital services comprises

expenditure on services provided to a patient who is treated in either a public psychiatric or

services, patient transport services, public health and health research undertaken by the

hospital.

It does not include the funding by public hospitals of the contracted care provided by private

hospitals for public patients. This expenditure is reported as part of private hospital

expenditure.

59

2003–04 743 7,500 147 673 9,063 10,099 1,275 20,437

2004–05 814 7,919 180 823 9,735 10,896 1,460 22,091

2005–06 685 8,321 207 893 10,105 12,374 1,840 24,319

2003–04 3.6 36.7 0.7 3.3 44.3 49.4 6.2 100.0

2004–05 3.7 35.8 0.8 3.7 44.1 49.3 6.6 100.0

2005–06 2.8 34.2 0.8 3.7 41.6 50.9 7.6 100.0

(a) Public hospital services excludes dental services, community health services, patient transport services, public health and health

research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or

other services. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this

is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).

(c) Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital

services which are not AHCAs, for example for highly specialised drugs, hepatitis C funding, Health Program and PET Scanner

grants.

60

2003–04 289 2,538 79 236 3,141 3,943 596 7,680

2004–05 326 2,651 96 288 3,361 4,288 668 8,317

2005–06 307 2,796 109 312 3,524 4,549 826 8,899

2003–04 196 1,816 30 173 2,216 2,438 405 5,059

2004–05 221 1,918 40 218 2,396 2,617 479 5,493

2005–06 163 1,999 49 221 2,432 2,936 558 5,926

2003–04 64 1,421 13 111 1,609 1,526 70 3,204

2004–05 80 1,515 15 139 1,749 1,536 61 3,346

2005–06 52 1,615 14 147 1,828 2,062 141 4,032

2003–04 97 731 9 63 900 895 70 1,865

2004–05 86 792 11 70 960 986 106 2,052

2005–06 58 817 14 73 963 1,141 140 2,244

2003–04 71 634 12 53 771 740 57 1,568

2004–05 75 663 14 62 814 857 61 1,732

2005–06 79 698 15 68 860 961 66 1,887

2003–04 15 168 3.3 18 205 152 31 389

2004–05 15 178 4.2 23 220 175 29 425

2005–06 14 185 4.9 26 230 225 35 489

2003–04 10 99 — 12 120 199 39 359

2004–05 10 104 — 14 128 214 52 395

2005–06 11 107 — 15 133 261 60 454

2003–04 0.9 93 0.3 8 102 207 6 314

2004–05 — 98 0.4 9 106 221 5 332

2005–06 — 104 0.4 (e)30 134 239 15 387

(a) Public hospital services excludes dental services, community health services, patient transport services, public health and health

research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or other

services. See Box 3 for details on distinction between public hospitals and public hospital services.

(b) Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this

is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).

(c) Excludes palliative care in 2004–05 ($36 million). There is a difference of up to $2 million for NSW, Vic, QLD and WA in 2003–04 due

to a difference in the amount reported in the 2003–04 Department of Health and Ageing Annual Report (DoHA 2004) and the SPPs

in the 2003–04 Treasury Final Budget Outcome (Treasury 2004).

(d) Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital services

which are not AHCAs, for example for highly specialised drugs, hepatitis C funding, Health Program and PET Scanner grants.

(e) Includes a $21 million SPP for Royal Darwin Hospital.

61

2003–04 3.8 33.0 1.0 3.1 40.9 51.3 7.8 100.0

2004–05 3.9 31.9 1.2 3.5 40.4 51.6 8.0 100.0

2005–06 3.5 31.4 1.2 3.5 39.6 51.1 9.3 100.0

2003–04 3.9 35.9 0.6 3.4 43.8 48.2 8.0 100.0

2004–05 4.0 34.9 0.7 4.0 43.6 47.7 8.7 100.0

2005–06 2.7 33.7 0.8 3.7 41.0 49.5 9.4 100.0

2003–04 2.0 44.3 0.4 3.5 50.2 47.6 2.2 100.0

2004–05 2.4 45.3 0.4 4.2 52.3 45.9 1.8 100.0

2005–06 1.3 40.1 0.4 3.6 45.3 51.1 3.5 100.0

2003–04 5.2 39.2 0.5 3.4 48.3 48.0 3.8 100.0

2004–05 4.2 38.6 0.5 3.4 46.8 48.1 5.1 100.0

2005–06 2.6 36.4 0.6 3.3 42.9 50.9 6.3 100.0

2003–04 4.5 40.5 0.8 3.4 49.2 47.2 3.6 100.0

2004–05 4.4 38.3 0.8 3.6 47.0 49.5 3.5 100.0

2005–06 4.2 37.0 0.8 3.6 45.6 50.9 3.5 100.0

2003–04 4.0 43.3 0.9 4.6 52.8 39.2 8.1 100.0

2004–05 3.5 41.8 1.0 5.4 51.8 41.3 6.9 100.0

2005–06 2.9 37.9 1.0 5.3 47.0 45.9 7.1 100.0

2003–04 2.7 27.6 — 3.2 33.5 55.6 10.9 100.0

2004–05 2.6 26.4 — 3.6 32.5 54.2 13.2 100.0

2005–06 2.4 23.6 — 3.4 29.4 57.5 13.2 100.0

2003–04 0.3 29.5 0.1 2.6 32.4 65.8 1.8 100.0

2004–05 — 29.3 0.1 2.6 32.0 66.6 1.4 100.0

2005–06 — 26.8 0.1 (e)7.7 34.6 61.7 3.8 100.0

(a) Public hospital services excludes dental services, community health services, patient transport services, public health and health research

undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or other services. See

Box 3 for details on distinction between public hospitals and public hospital services.

(b) Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this

is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).

(c) Excludes palliative care in 2004–05 ($36 million). There is a difference of up to $2 million for NSW, Vic, QLD and WA in 2003–04 due to a

difference in the amount reported in the 2003–04 Department of Health and Ageing Annual Report (DoHA 2004) and the SPPs in the

2003–04 Treasury Final Budget Outcome (Treasury 2004).

(d) Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital services

which are not AHCAs, for example for highly specialised drugs, Hepatitis C funding, Health Program and PET Scanner grants.

(e) Includes a $21 million SPP for Royal Darwin Hospital.

62

In 2005–06, the Australian Government provided 41.6% ($10,105 million) of the funding for

public hospital services, a 2.7 percentage points’ decrease in funding from 2003–04. The

Australian Government AHCA funding in 2005–06 was 34.2% of funding for public hospital

services which was a 2.5 percentage point decrease since 2003–04 (Table 38). In comparison,

state and territory governments contributed 50.9% ($12,374 million) of funding in 2005–06,

an increase of 1.5 percentage points since 2003–04.

Non-government funding of public hospital services comprised 7.6% of total funding for

public hospitals in 2005–06 ($1,840 million), which was an increase of 1.4 percentage points

since 2003–04.

Total expenditure on private hospitals in 2005–06 was estimated at $6,683 million (Figure 14).

Two-thirds (68.8%) of this came via private health insurance funds. This comprised 45.7%

out of the premiums paid by contributors and other revenues flowing to the funds, and the

remaining 23.1% being indirectly funded out of the 30% rebates paid by the Australian

Government in respect of contributors’ premiums. In 2005–06 those rebates, in total,

amounted to $3.2 billion, and $1.5 billion of that is estimated to have been used in the

funding of private hospitals (Table 27).

State/territory and

local governments

3.7%

Other Australian

Government

1.9%

Other nongovernment(

a)

8.9% DVA

12.5%

Health insurance

premium rebate

23.1%

Private health

insurance funds

45.7%

Individuals

4.2%

(a) Includes funding by injury compensation insurers.

63

Patient transport services provide transport to and from health care facilities for patients

receiving outpatient or admitted patient treatment. Expenditure for these services includes

patient transport expenses that are provided by public hospitals (see Box 3 for more detail).

Total estimated expenditure on patient transport services in 2005–06 was $1,439 million

(Table A3). In real terms, estimated expenditure increased by an average of 1.3% per year

between 2003–04 and 2005–06 (calculated from the source for Table 20). In 2005–06 the

proportion of patient transport expenditure that was funded by the Australian Government

was 11.5%. State and territory and local governments provided 62.5% of the funding for

patient transport services and non–government sources provided the remaining 26.0%

(calculated from Table A3).

Between 1995–96 and 2005–06, expenditure on medical services increased, in real terms, at an

average of 2.6% per year (Table 41).

Almost all expenditure on medical services in Australia relates to services that are provided

by practitioners on a ‘fee-for-service’ basis. This is reflected in the distribution of funding for

medical services. Of the $15.5 billion spent on medical services in 2005–06, 79.0%

($12.2 billion) was funded by the Australian Government (Figure 15). This was made up

almost exclusively of medical benefits paid under Medicare, with some funding from the

DVA for medical services to eligible veterans and their dependants, as well as payments to

general practitioners under alternative funding arrangements. Of the remaining expenditure,

11.3% was funded by individuals, 4.1% was from health insurance funds and 5.7% was other

non-government funding (Figure 15).

Medical services out-of-pocket expenditure increased by 7.6% ($123 million) in 2005-06

(Tables A2 and A3). Real growth in expenditure by individuals between 1995–96 and

2005–06 was 6.0% per year, 0.9 percentage points above the real growth in health

expenditure (5.1%) (Tables 1 and 25).

64

Australian Government

79.0%

Other nongovernment(

a)

Individuals 5.7%

11.3%

Health insurance funds

4.1%

(a) Includes funding by injury compensation insurers.

Between 1995–96 and 2005–06, the Australian Government’s real expenditure on medical

services grew by 2.2%, while expenditure by individuals rose by 4.2% and that of health

insurance funds rose by 6.5% (Table 41).

From 1999–00, with the introduction of the ‘Lifetime Health Cover’ incentives and other

measures which increased insurance coverage, real growth in funding by the health

insurance funds accelerated sharply until 2003–04 when the growth rate decreased to

6.5% from 11.6% in the previous year. In 2004–05 real funding by health insurance funds

declined by 0.2%, but in 2005–06 growth was 1.9% (Table 41).

65

1995–96 9,361 . . 322 . . 1,091 . . 569 . . 11,342 . .

1996–97 9,510 1.6 324 0.6 1,160 6.3 620 9.0 11,614 2.4

1997–98 9,714 2.1 292 –9.8 1,262 8.8 619 –0.1 11,887 2.4

1998–99 10,026 3.2 274 –6.0 1,318 4.4 651 5.1 12,268 3.2

1999–00 10,527 5.0 286 4.1 1,320 0.2 683 5.0 12,816 4.5

2000–01 10,524 — 361 26.4 1,365 3.4 657 –3.8 12,907 0.7

2001–02 10,714 1.8 498 38.0 1,431 4.8 754 14.8 13,397 3.8

2002–03 10,657 –0.5 556 11.6 1,616 13.0 793 5.1 13,622 1.7

2003–04 10,738 0.8 592 6.5 1,724 6.7 850 7.2 13,904 2.1

2004–05 11,589 7.9 591 –0.2 1,622 –5.9 844 –0.8 14,646 5.3

2005–06 11,590 — 602 1.9 1,653 1.9 832 –1.4 14,677 0.2

1995–96 to 1997–98 1.9 –4.7 7.5 4.3 2.4

1997–98 to 2002–03 1.9 13.8 5.1 5.1 2.8

1995–96 to 2005–06 2.2 6.5 4.2 3.9 2.6

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.

Bulk-billing influences the relative shares of funding by the Australian Government and

individuals, because services that are bulk-billed do not attract any co-payment by

individuals. The trends in the bulk-billing rate parallel trends in the proportion of medical

services expenditure funded by individuals. So, the peak for individuals’ payments in

2003–04 of 12.4% of medical services expenditure also represented the lowest bulk-billing

rate in this period (Table 42).

In 1995–96, 71.1% of all medical services were bulk-billed. Bulk-billing rates continued to

increase up to 1999–00 when rates peaked at 72.3% (Table 42). After this year, the overall

bulk-billing rate declined to 2003–04, when 67.5% of all medical services were bulk-billed.

Since then the rate has increased to 71.7% in 2005–06 (an increase of 0.6 percentage points

since 1995-96)—a similar proportion to the levels of services that were bulk-billed in 1996–97.

The increase in the Australian Government proportion in 2004–05 and the decrease in the

individual proportion reflects a number of factors including the Strengthening Medicare

program which, from 1 January 2005, increased the benefit paid for general practitioner

services from 85% to 100% of the schedule fee.

66

1995–96 82.5 2.8 9.6 5.0 17.5 100.0 71.1

1996–97 81.9 2.8 10.0 5.3 18.1 100.0 71.8

1997–98 81.7 2.5 10.6 5.2 18.3 100.0 71.8

1998–99 81.7 2.2 10.7 5.3 18.3 100.0 72.0

1999–00 82.1 2.2 10.3 5.3 17.9 100.0 72.3

2000–01 81.5 2.8 10.6 5.1 18.5 100.0 71.4

2001–02 80.0 3.7 10.7 5.6 20.0 100.0 70.4

2002–03 78.2 4.1 11.9 5.8 21.8 100.0 67.8

2003–04 77.2 4.3 12.4 6.1 22.8 100.0 67.5

2004–05 79.1 4.0 11.1 5.8 20.9 100.0 70.2

2005–06 79.0 4.1 11.3 5.7 21.0 100.0 71.7

(a) Includes funding by injury compensation insurers.

(b) Bulk-billing rate for all services covered under Medicare, which is almost entirely medical services, but also includes optometrical and

other selected allied health and dental services.

Of the $3.0 billion spent on other health practitioners in 2005–06, over half of the expenditure

was funded by individual users of services (54.5% in 2005–06) (calculated from Table A3).

Of the remaining $1.4 billion, $578 million (41.8%) was funded by private health insurance

and Australian Government health insurance rebates.

In real terms, expenditure on other health practitioners rose at an average of 3.1% per year

between 2003–04 to 2005–06 (Table A8), 0.7 percentage points lower than the growth in

recurrent health expenditure (3.8%) over that period.

Medications comprise benefit-paid pharmaceuticals and other medications (pharmaceuticals

and other medicines) for which no PBS or RPBS benefit was paid. Other medications include

private and under co-payment prescriptions, and over-the-counter medicines such as

pharmacy-only medicines, pain-killers, cough and cold medicines, vitamins and minerals,

and a range of medical non-durables, such as bandages, bandaids and condoms. For more

information see Table 65 and the Glossary.

In real terms, total expenditure on medications increased by 8.6% per year from 1995–96 to

2005–06, to reach $11.4 billion in 2005–06 (Table 20). While total medication expenditure

experienced fairly consistent growth in most years between 1995–96 and 2004-05,

expenditure on benefit-paid pharmaceuticals and other medications fluctuated much more

from year to year (Table A8). This is partly due to the effects of the co-payment in

determining what items attract benefits. The benefit-paid pharmaceuticals category includes

only those items listed under the Schedule of Pharmaceutical Benefits for which benefits

67

were actually paid. Items that are listed on the PBS but have a price below the statutory

patient co-payment are recorded in the ‘other medications’ category, so when the

co-payment is high there is more expenditure recorded in the ‘other medications’ category.

In real terms, recurrent expenditure on benefit-paid pharmaceuticals grew at an average of

9.1% per year from 1995–96 to 2005–06 compared to growth in total recurrent health

expenditure of 4.8% (Tables 43 and A8). The period of most rapid growth was from 1997–98

to 2002–03, when growth averaged 12.4% per year—which was shared between the

Australian Government (12.9% per year) and individuals’ (9.6% per year).

In 2005–06, the total amount spent on pharmaceuticals for which benefits were paid was

$7,286 million in current prices (Figure 16). This was a growth in real terms of 2.7% from the

previous year (Table 43). Benefits paid by the Australian Government for PBS and RPBS

items accounted for 80.6% of this expenditure and 16.1% was due to patient contributions for

PBS and RPBS items. The balance (3.3%) was due to Section 100 drugs (excluding highly

specialised drugs which are included in hospital expenditure) and other Australian

Government Department of Health and Ageing (DoHA) administered expense items.

Patient contribution

for PBS and RPBS

items

16.1%

Section 100 drugs

(excluding highly

specialised drugs)

3.0%

Australian

Government benefits

paid for PBS and

RPBS items

80.6%

Other(a)

0.3%

(a) ‘Other’ refers to other DoHA administered expense items.

68

1995–96 2,548 . . 502 . . 3,049 . .

1996–97 2,760 8.3 558 11.2 3,318 8.8

1997–98 2,820 2.2 601 7.8 3,421 3.1

1998–99 3,108 10.2 631 4.9 3,739 9.3

1999–00 3,541 13.9 684 8.4 4,225 13.0

2000–01 4,333 22.4 778 13.8 5,111 21.0

2001–02 4,687 8.2 843 8.4 5,531 8.2

2002–03 5,176 10.4 952 12.9 6,129 10.8

2003–04 5,672 9.6 1,037 8.9 6,709 9.5

2004–05 5,930 4.6 1,151 10.9 7,081 5.5

2005–06 6,034 1.7 1,237 7.5 7,271 2.7

1995–96 to 1997–98 5.2 9.5 5.9

1997–98 to 2002–03 12.9 9.6 12.4

1995–96 to 2005–06 9.0 9.4 9.1

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

In real terms, recurrent expenditure on other medication items (see Table 65 for definition)

grew by an average of 7.7% between 1995–96 and 2005–06 (Table 44). Expenditure by the

Australian Government from 1997–98 in this category includes a proportion of the private

health insurance rebate allocated to pharmaceuticals.

The main source of funding for other medication items was individuals’ out-of-pocket

expenditure. The most rapid period of growth for individual out-of-pocket expenditure

(19.6%) was from 1995–96 to 1997–98 (Table 44).

69

1995–96 — . . 13 . . 52 . . 1,881 . . 1,946 . .

1996–97 — . . 13 2.1 52 0.3 2,108 12.1 2,173 11.7

1997–98 4 . . 19 44.4 36 –31.3 2,464 16.9 2,522 16.1

1998–99 8 126.0 — . . 33 –7.9 2,689 9.1 2,731 8.3

1999–00 15 84.0 — . . 34 3.8 2,953 9.8 3,003 10.0

2000–01 89 489.1 — . . 39 14.5 3,207 8.6 3,335 11.1

2001–02 57 –35.5 2 . . 49 24.6 3,731 16.3 3,839 15.1

2002–03 63 10.1 — . . 56 14.2 3,428 –8.1 3,547 –7.6

2003–04 77 22.7 — . . 51 –8.4 3,589 4.7 3,717 4.8

2004–05 121(b) 56.5 — . . 51 –0.2 3,913 9.0 4,085 9.9

2005–06 69 –43.0 — . . 45 –11.0 3,965 1.3 4,079 –0.2

1995–96 to 1997–98 . . 21.4 –20.3 19.6 13.9

1997–98 to 2002–03 77.0 . . 9.2 5.9 7.1

1995–96 to 2005–06 . . . . –1.3 7.7 7.7

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

(b) The large increase was due to pharmacy restructuring grants in this year.

In 2005–06, expenditure on all other medication items was $4,216 million. Over-the-counter

medicines accounted for the largest share of this expenditure at 70.3%. Private prescriptions

accounted for 12.5%, under co-payment prescriptions for 14.6% and the remainder (2.6%)

comprised funding from injury compensation insurers and other DoHA administered

expense items (Figure 17).

70

Other(a)

2.6%

Over-the-counter

medications

70.3%

Private

prescriptions

12.5%

Under co-payment

prescriptions

14.6%

(a) Includes injury compensation insurers’ payments and some DoHA administered expense items.

data and AIHW health expenditure database.

In 2005–06, estimated expenditure on pharmaceuticals (excluding complementary and

alternative medications, and over-the-counter medications for which a prescription was not

required) was $10,551 million (Table 45). The majority of this expenditure was for

benefit-paid pharmaceuticals (69.1% or $7,286 million), most of which was funded by the

Australian Government (83.0%). Individuals’ out-of-pocket expenses accounted for the

remaining 17.0% of benefit-paid pharmaceuticals. Expenditure on in-hospital drugs

comprised $1,658 million spent on drugs by public hospitals and $356 million spent by

private hospitals. This total ($10,551 million) does not include expenditures incurred by the

Australian Government and state and territory governments in purchasing and

administering vaccines under various state, territory and national public health programs.

71

Funded by

Australian Government DVA 468 . . . . 468

Australian Government DoHA(d)(e) 5,578 71 . . 5,649

Health insurance funds . . 47 . . 47

Individuals 1,240 1,072 . . 2,312

Injury compensation insurers and

other . . 62 . . 62

(a) Excludes complementary and alternative medicines and over-the-counter medicines for which a prescription is not required.

(b) Includes private prescriptions and under co-payment prescriptions.

(c) Does not include the costs of paying hospital staff to dispense these pharmaceuticals. Dispensary costs are, however,

included in the first two columns of this table.

(d) Does not include $529 million in payments for highly specialised drugs, which are included in the public hospitals and

private hospitals rows.

(e) Includes $232 million in Section 100 payments for human growth hormones, In-vitro fertilisation (IVF) and other subsidised

pharmaceuticals.

(f) Includes $422 million in Australian Government payments to states and territories for highly specialised drugs.

(g) Includes $107 million in Australian Government payments for highly specialised drugs.

Expenditure on benefit-paid items under the PBS and RPBS represented almost

three-quarters (69.1%) of the total expenditure on pharmaceuticals for which a prescription

was required (Table 45). Expenditure on benefit-paid items has two components—the cost to

government and co-payments by users.

The cost to government under the PBS (not including expenditure under the RPBS) in

2004–05 was estimated at $5,296 million (Table 46). In 2005–06, it increased to $5,384 million.

The relative funding shares of the PBS (that were met by the Australian Government through

benefits and by individuals through their co-payments) changed little until 1 January 2005,

when co-payments by general patients increased from $23.70 per prescription to $28.60 and

by concessional patients from $3.80 to $4.60. From 1 January 2006, co-payments increased

again to $29.50 and $4.70 respectively.

There have also been some changes over time in the proportion of total patient contribution

paid by general and concessional patients and funding under the safety net arrangements. In

2001–02, concessional patients contributed $362 million or 44.9% of total patient

contributions. By 2005–06 their proportion of the total contribution had dropped to

43.5% ($489 million). During the same period contributions provided by the Australian

Government for general and concessional patients under the safety net arrangement

increased from $926 million (22.1% of Australian Government contribution to PBS benefits)

to $1,389 million (25.8%) in 2005–06 (calculated from Table 46).

72

General patients 444 489 545 597 634

Concessional patients 362 370 393 444 489

General patients–no safety net 691 751 824 851 850

General patients–safety net 148 170 191 223 216

Concessional patients–no safety net 2,570 2,747 2,972 3,077 3,145

Concessional patients–safety net 778 908 1,005 1,145 1,173

(a) Does not include RPBS or ‘doctors bag’ pharmaceuticals.

(b) Excludes Section 100 payments for human growth hormones, IVF and other non-PBS subsidised pharmaceuticals.

Expenditure on health aids and appliances grew by 6.7% per year in real terms over the

period 2003–04 to 2005–06 which was 2.9 percentage points above the growth in recurrent

health expenditure (3.8%) over that period. The fastest year of growth was 1999–00 to

2000–01, when it grew by 30.3% (Table A8).

In 2005–06, expenditure on aids and appliances was $2,787 million, of which 74.3% was

funded by individuals’ out-of-pocket expenditure (calculated from Table A3).

In 2004–05, expenditure by state, territory and local governments totalled $2.9 billion out of a

total of $3.6 billion spent on community health services (Table A2). In 2005–06, community

health was estimated at $3.9 billion, which was a growth of 9.8% from 2004–05 to 2005–06

(Tables A2 and A3).

73

Public health covers those programs which aim to prevent illness and injury and protect or

promote the health of the whole, or specified sub-groups, of the population. While reliable

estimates are not available for earlier years, since 1999–00, estimates of public health

expenditure have been compiled on a consistent basis in each state and territory and for the

Australian Government using a single collection protocol developed through the National

Public Health Expenditure Project (AIHW 2002, 2004, 2006b, 2007b).

Over the past three years, public health expenditure was estimated at:

• 2003–04—$1.3 billion

• 2004–05—$1.4 billion

• 2005–06—$1.5 billion.

Over these three years the Australian Government’s funding of total public health

expenditure has been respectively 52.0%, 60.1% and 54.1% (calculated from

Tables A1, A2 and A3). Part of this Australian Government funding was directed to state and

territory governments to fund public health initiatives (24.6%, 27.4% and 24.4% respectively

of total public health expenditure). State and territory own source funding of public health

was 43.0%, 36.0% and 42.8% respectively.

Individuals funded 66.9% of the $5.3 billion spent on dental services in 2005–06 (Table A3).

For the period 2003–04 to 2005–06, real growth in dental services expenditure averaged

1.9% per year—1.9 percentage points below the annual real growth in total recurrent health

expenditure of 3.8% (Table A8). In nominal terms, average annual growth for dental services

expenditure was 7.2% during this period, 1.0 percentage points lower than the growth for

total recurrent health expenditure of 8.2% (Table A7).

Total estimated expenditure on health research in 2005–06 was $1,915 million (Table A3). In

real terms, estimated expenditure grew at an average of 8.0% per year between 1995–96 and

2005–06 (Table 47). Two-thirds (66.6%) of the expenditure on health research in 2005–06 was

funded by the Australian Government, 11.9% by state and territory and local governments

and a further 21.5% was funded by non-government sources (calculated from Table 47).

74

1995–96 592 . . 113 . . 145 . . 850 . .

1996–97 607 2.6 134 18.7 156 7.2 897 5.5

1997–98 555 –8.5 124 –7.4 168 7.7 847 –5.5

1998–99 641 15.5 117 –5.6 153 –8.9 911 7.6

1999–00 702 9.5 139 18.8 241 57.9 1,083 18.8

2000–01 879 25.2 169 21.0 291 20.5 1,339 23.6

2001–02 929 5.6 177 5.0 311 7.0 1,417 5.9

2002–03 1,005 8.1 164 –7.3 329 5.6 1,497 5.6

2003–04 1,023 1.8 180 9.5 340 3.4 1,542 3.0

2004–05 1,133 10.8 208 15.6 374 10.1 1,715 11.2

2005–06 1,221 7.8 219 5.6 394 5.3 1,834 7.0

1995–96 to 1997–98 –3.1 4.9 7.5 –0.2

1997–98 to 2002–03 12.6 5.7 14.4 12.1

1995–96 to 2005–06 7.5 6.8 10.5 8.0

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

Because investments in health facilities and equipment involve large outlays, and the lives of

such facilities and equipment can be very long (up to 50 years is not uncommon for

buildings), capital expenditure can fluctuate greatly from year to year (Table 48 and

Figure 18). It is, therefore, meaningless to look at average growth rates over a relatively short

period such as 10 years. Capital expenditure on health facilities and investments in 2005–06

was $5,053 million (in 2004–05 prices), 6.0% of total health expenditure (Table A6).

Australian Government funding of capital is often by way of grants and subsidies to other

levels of government or to non-government organisations.

State, territory and local governments, in contrast, devote much of their resources to new

and replacement capital for government service providers (for example, hospitals and

community health facilities). There were particularly high levels of capital expenditure in

Queensland towards the end of the 1990s as some of the state’s very old or run-down capital

stock was replaced.

Typically, capital expenditure by the non-government sector accounts for around 60% of all

capital expenditure in any year (Table 48). Non-government capital investment is largely in

private hospitals, but also includes other types of facilities.

75

1995–96 53 950 919 1,921

1996–97 42 1,198 1,079 2,318

1997–98 49 1,488 1,116 2,653

1998–99 125 1,102 1,693 2,920

1999–00 30 1,412 1,778 3,221

2000–01 111 1,491 2,052 3,654

2001–02 136 1,457 2,163 3,756

2002–03 128 1,454 2,431 4,013

2003–04 147 1,386 2,676 4,209

2004–05 191 1,571 2,906 4,669

2005–06 184 1,857 3,012 5,053

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1995–96

1996–97

1997–98

1998–99

1999–00

2000–01

2001–02

2002–03

2003–04

2004–05

2005–06

State/territory and local governments

Non-government

Australian Government

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

76

Capital consumption is otherwise known as depreciation and represents the amount of fixed

capital used up each year. The AIHW sources the data for government capital consumption

from ABS government finance statistics (GFS). Within the National Health Accounts (NHA)

tables, government capital consumption is separately reported to recurrent expenditure and

sits alongside capital expenditure. Together capital expenditure, government capital

consumption and recurrent expenditure add to total health expenditure. Ideally government

capital consumption would be split by area of expenditure and reported as part of recurrent

expenditure. But data are not yet available to do this, so until they are, government capital

consumption will continue to be reported separately as one overall number.

Capital consumption (depreciation) by governments, in real terms, was estimated at

$1,294 million in 2005–06 (Table 49). This was an increase, in real terms, of 2.7% from

2004–05.

1999–00 942 977 . .

2000–01 984 1,004 2.7

2001–02 1,029 1,053 4.9

2002–03 1,073 1,092 3.7

2003–04 1,160 1,186 8.6

2004–05 1,260 1,260 6.2

2005–06 1,323 1,294 2.7

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

77

The medical expenses tax rebate becomes available to individuals to claim through the

taxation system if they have out-of-pocket medical expenses over a specified limit in an

income year. For the 2005–06 income year the tax rebate was 20 cents for each $1 by which a

taxpayer’s net medical expenses exceeded $1,500 (the threshold). Net medical expenses are

the medical expenses that have been paid less any refunds that have been received, or could

be received, from Medicare or a private health fund.

This tax rebate applies in regard to a wide range of health expenditures, not just expenses

associated with doctors as its name might suggest. It is currently the only component of the

category ‘non-specific tax expenditure’. As the name indicates, ‘non-specific tax

expenditures’ are those tax expenditures that cannot be specifically allocated to the various

areas of health expenditure.

The medical expenses tax rebate in real terms was estimated at $315 million in 2005–06. This

was an increase in real terms of 8.8% from 2004–05. The average annual real increase over

the decade from 1995–96 was 10.0% (Table 50).

1995–96 91 121 . .

1996–97 113 149 22.4

1997–98 128 166 11.9

1998–99 145 182 9.7

1999–00 162 199 8.9

2000–01 173 205 3.0

2001–02 203 231 13.0

2002–03 225 245 6.1

2003–04 251 262 6.8

2004–05 290 290 10.7

2005–06 329 315 8.8

1995–96 to 2005–06 10.0

(a) Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.

78

This chapter presents international comparisons of health expenditure for countries that are

current members of the OECD and also countries in the Asia Pacific region. Differences

between countries in terms of what is included as ‘health expenditure’ complicate the

comparison to some extent, so caution is warranted when making comparisons.

Health expenditure by different countries can be compared as a proportion of GDP. This

gives a measure of the proportion of a nation’s productive effort that is spent on funding its

health goods and services. Short-term fluctuations in the health to GDP ratio can, however,

be misleading because they reflect movements in GDP as well as in health expenditure.

Health expenditure per person allows for comparisons between countries and within a

country over time without the distorting effect of movements in GDP and population size

differences. In calculating it, allowance was made for the different purchasing powers of

currencies in the various countries. This has been done by using purchasing power parities

(PPPs) for the whole of GDP to convert expenditures in each of the countries first into US

dollars and then into Australian dollars. The whole of GDP PPPs are used because of the

poor reliability of health-specific ones, particularly in the early part of the period.

For the OECD countries, weighted averages as a whole have been calculated to take into

account the proportional relevance of each component. For example, the weighted average of

the per person health expenditure is total health expenditure divided by the total OECD

population.

The OECD median health to GDP ratio for 1995, 2000 and 2005 was respectively 7.5%, 8.1%

and 9.0%. Australia’s average was slightly lower in 1995 (7.4%), higher in 2000 (8.3%) and

lower in 2005 (8.8%). In per person terms Australia’s average was higher in each of the three

years (Table 51).

The United States was by far the highest spender on health care, spending 15.3% of GDP in

2005 and an average expenditure per person that was more than double the amount for

Australia ($8,833 per person compared with $4,121 for Australia) (Table 51).

In 2005, Australia had a health to GDP ratio that was comparable to Italy and New Zealand,

was more than the United Kingdom and considerably lower than the United States

(Table 51 and Figure 19).

Australia’s three tiers of government funded an average of 67.0% of total health expenditure

in 2005, which was 9.2 percentage points below the OECD median of 76.2%. Over the

decade, the government contribution to the funding of health care in Australia edged up by

1 percentage point, while the government share for the OECD overall increased by

1.9 percentage points (Table 52).

Government health expenditure in 2005 as a proportion of GDP was 5.9% in Australia,

1 percentage point below the OECD median, and lower than the 6.9% of GDP that USA

governments spend on health (Table 52).

Australia‘s per person out-of-pocket expenditure ($335 in current prices) was $84 below the

weighted mean in 1995, but $40 above the weighted mean in 2005 (Table 53). Australia’s

79

out-of-pocket expenditure as a percentage of total expenditure and total household final

consumption expenditure (HFCE) rose between the two periods from 15.9% to 18.2% and

from 2.0% to 2.8%, respectively. For the OECD weighted averages, while out-of-pocket

expenditure rose as a percentage of total HFCE (2.7% to 2.8%), it fell as a percentage of total

health expenditure (16.6% to 15.5%) (Table 53).

The OECD averages in this publication are averages (means) of member countries for which

data are available for all the years presented. The periods covered by the OECD data for a

particular year differ from one country to another (see Box 5 for examples).

80

United States 13.3 4,826 13.2 5,985 15.3 8,833

Switzerland 9.7 3,394 10.4 4,167 11.6 5,764

France 9.9 2,726 9.6 3,258 11.1 4,656

Germany 10.1 2,937 10.3 3,451 10.7 4,536

Belgium 8.2 2,416 8.6 3,014 10.3 4,677

Austria 9.8 2,970 10.0 3,701 10.2 4,856

Portugal 7.8 1,447 8.8 2,129 10.2 2,806

Greece 7.5 1,650 9.3 2,555 10.1 4,114

Canada 9.0 2,715 8.8 3,287 9.8 4,590

Iceland 8.2 2,446 9.3 3,533 9.5 4,751

Denmark 8.1 2,433 8.3 3,119 9.1 4,289

Norway 7.9 2,497 8.4 4,037 9.1 6,022

Sweden 8.1 2,288 8.4 2,976 9.1 4,027

New Zealand 7.2 1,642 7.7 2,103 9.0 3,233

Italy 7.3 2,062 8.1 2,722 8.9 3,494

United Kingdom 7.0 1,827 7.3 2,435 8.3 3,759

Spain 7.4 1,575 7.2 1,991 8.2 3,112

Turkey 3.4 247 6.6 591 7.6 809

Finland 7.5 1,886 6.6 2,249 7.5 3,217

Ireland 6.7 1,599 6.3 2,387 7.5 4,038

Czech Republic 7.0 1,208 6.5 1,272 7.2 2,041

Slovak Republic . . . . 5.5 779 7.1 1,569

Mexico 5.6 512 5.6 663 6.4 932

Poland 5.5 550 5.5 773 6.2 1,196

Korea 4.1 701 4.8 1,022 6.0 1,819

Hungary 7.3 904 6.9 1,123 n.a. n.a.

Japan 6.9 2,041 7.7 2,577 n.a. n.a.

Luxembourg 5.6 2,682 5.8 3,909 n.a. n.a.

Netherlands 8.3 2,404 8.0 2,958 n.a. n.a.

(a) See definition of ‘OECD financial year’ in Box 5.

(b) Expenditure based on the OECD System of Health Accounts (SHA) framework.

(c) The 29 countries included in the averages exclude the Slovak Republic. Averages for 2005 incorporate 2004 data for Hungary, Japan,

Luxembourg and the Netherlands.

(d) Average weighted by GDP or population.

81

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

(a) See definition of ‘OECD financial year’ in Box 5.

82

Greece 52.0 3.9 44.2 4.1 42.8 4.3

United States 45.3 6.0 43.7 5.8 45.1 6.9

Mexico 42.1 2.4 46.6 2.6 45.5 2.9

Korea 35.7 1.5 46.8 2.2 53.0 3.2

Switzerland 53.8 5.2 55.6 5.8 59.7 6.9

Poland 72.9 4.0 70.0 3.9 69.3 4.3

Canada 71.4 6.4 70.4 6.2 70.3 6.9

Spain 72.2 5.4 71.6 5.2 71.4 5.9

Turkey 70.3 2.4 62.9 4.2 71.4 5.4

Belgium 78.5 6.5 76.0 6.6 72.3 7.4

Portugal 62.6 4.9 72.5 6.4 72.7 7.4

Slovak Republic . . . . 89.4 4.9 74.4 5.3

Austria 71.5 7.0 75.9 7.6 75.7 7.7

Italy 70.8 5.1 72.5 5.8 76.6 6.8

Germany 81.6 8.2 79.7 8.2 76.9 8.2

Finland 75.6 5.6 75.1 4.9 77.8 5.9

Ireland 71.8 4.8 72.9 4.6 78.0 5.8

New Zealand 77.2 5.5 78.0 6.0 78.1 7.0

France 78.6 7.7 78.3 7.5 79.8 8.9

Iceland 83.9 6.9 82.0 7.6 82.5 7.9

Norway 84.2 6.6 82.5 6.9 83.6 7.6

Denmark 82.5 6.7 82.4 6.8 84.1 7.7

Sweden 86.6 7.0 84.9 7.1 84.6 7.7

United Kingdom 83.9 5.8 80.9 5.9 87.1 7.2

Czech Republic 90.9 6.4 90.3 5.9 88.6 6.4

Hungary 84.0 6.1 70.7 4.9 n.a. n.a.

Japan 83.0 5.7 81.3 6.2 n.a. n.a.

Luxembourg 92.4 5.1 89.3 5.2 n.a. n.a.

Netherlands 71.0 5.9 63.1 5.0 n.a. n.a.

(a) See definition of ‘OECD financial year’ in Box 5.

(b) Expenditure based on the OECD SHA framework.

(c) The 28 countries included in the averages exclude the Slovak Republic and the Netherlands. Averages for 2005 incorporate

2004 data for Hungary, Japan and Luxembourg.

(d) Average weighted by total health expenditure or GDP.

83

Switzerland 1,119 33.0 5.5 1,761 30.5 6.1

United States 725 15.0 2.9 1,162 13.1 2.9

Belgium n.a. n.a. n.a. 994 21.2 4.2

Norway 380 15.2 2.5 943 15.7 3.5

Iceland 393 16.1 2.4 831 17.5 2.9

Austria 496 16.7 3.0 794 16.4 3.1

Italy 549 26.6 3.3 709 20.3 3.1

Spain 371 23.5 3.0 697 22.4 3.2

Korea 385 54.9 4.4 686 37.7 4.4

Canada 432 15.9 2.6 665 14.5 2.6

Portugal n.a. n.a. n.a. 625 22.3 3.6

Denmark 396 16.3 2.6 614 14.3 2.7

Germany 286 9.8 1.8 595 13.1 2.4

Finland 387 20.5 3.1 573 17.8 2.7

Ireland 230 14.4 1.9 542 13.4 2.4

New Zealand 265 16.2 2.0 541 16.7 2.6

Mexico 288 56.2 4.8 477 51.2 4.8

Slovak Republic . . . . . . 355 22.6 2.8

Netherlands n.a. n.a. n.a. 345 n.a. 1.5

France 218 8.0 1.4 322 6.9 1.4

Poland 149 27.1 2.5 312 26.1 2.6

Czech Republic 110 9.1 1.3 222 10.9 1.6

Turkey 74 29.7 1.4 160 19.9 2.2

Greece n.a. n.a. n.a. n.a. n.a. n.a.

Hungary 145 16.0 2.2 n.a. n.a. n.a.

Japan 313 15.3 1.9 n.a. n.a. n.a.

Luxembourg 166 6.2 0.8 n.a. n.a. n.a.

Sweden n.a. n.a. n.a. n.a. n.a. n.a.

United Kingdom 199 10.9 1.2 n.a. n.a. n.a.

(a) Total HFCE covers all goods and services, including health.

(b) See definition of ‘OECD financial year’ in Box 5.

(c) Expenditure based on the OECD SHA framework.

(d) The 23 countries included in the averages exclude Belgium, Greece, Netherlands, Portugal, Slovak Republic, Sweden and the

United Kingdom. Averages for 2005 incorporate 2004 data for Hungary, Japan and Luxembourg.

(e) Averages weighted by population for per person out-of-pocket expenditure and by health expenditure or HFCE for other categories.

84

Canada 6.2 2.0 0.1 2.1 1.0 3.1 4.1

Denmark(c) 5.5 2.1 0.0 2.0 0.4 3.0 3.4

Finland 5.2 1.4 1.8 3.2 0.3 1.6 1.9

France 5.0 1.4 –0.1 1.4 0.5 3.0 3.6

Italy 6.3 2.8 0.4 3.2 0.2 2.8 3.0

Spain(c) 6.8 3.1 –0.2 2.9 0.6 3.2 3.8

Sweden(d) 6.0 1.3 2.0 3.4 0.2 2.4 2.6

Switzerland(e) 4.1 0.5 0.2 0.7 0.5 2.8 3.4

United States 6.9 2.0 1.2 3.2 1.1 2.5 3.6

(a) See definition of ‘OECD financial year’ in Box 5.

(b) Expenditure based on the OECD SHA framework.

(c) 1995 to 2001.

(d) 1995 to 2002.

(e) 1995 to 2003.

Factors contributing to the growth in the health to GDP ratio are inflation (both general

inflation and excess health inflation) and changes in the level of goods and services used,

either from population growth or from more intensive per person use of goods and services.

The general rate of inflation is an indication of price pressures that apply throughout the

economy, and the rate of excess health inflation indicates additional price rises specific to the

health sector. The ability of a nation’s health financing system to influence growth in health

prices is one factor relevant to controlling growth in total expenditure on health.

For the decade to 2005, Australia had an average annual excess health inflation rate of 0.3%

which was the fifth highest for this group of 10 countries (Table 54).

In order to compare the level of expenditure without the complication of different rates of

population growth, it is useful to examine real growth in average per person expenditure on

health. For the decade to 2005, Australia had an average annual real growth in per person

expenditure of 3.7% (Table 54). This represents extra volumes of health services delivered

per Australian—this was the highest of the 10 countries in this group.

There is a very broad range of economies within the Asia–Pacific region, including highly

developed economies like Australia and Japan (Tables 51 to 53) as well as developing

economies like Malaysia, Thailand, Vietnam, Indonesia and Bangladesh (Table 55).

In 2004 Australia had the second highest health to GDP ratio, at 8.8%. For the other countries

in Table 55, Myanmar (2.2%), Indonesia (2.8%) and Bangladesh (3.1%) had a relatively low

health to GDP ratios.

85

Australia ($3,906 per person) had the highest average expenditure on health while Myanmar

($6 per person) had the lowest.

There are many reasons underlying the substantial differences between the levels of

resourcing for health in these countries. In many cases, low GDP means few resources are

available to devote to health. But on top of this, in some countries governments do not place

a high priority on health services.

Singapore 3.7 1,282 34.0 820 63.9

Malaysia 3.8 245 58.8 75 30.5

Fiji 4.6 201 62.3 76 37.7

Tonga 6.3 159 79.5 28 17.4

Samoa 5.3 148 76.8 27 18.1

Thailand 3.5 120 64.7 32 26.4

China 4.7 95 38.0 51 53.6

Vanuatu 4.1 79 76.8 11 13.3

Timor-Leste 11.2 59 78.9 3 5.4

Sri Lanka 4.3 58 45.6 26 45.7

Mongolia 6.0 51 66.6 16 30.8

Philippines 3.4 49 39.8 23 46.9

Solomon Islands 5.9 47 94.5 1 3.1

Indonesia 2.8 44 34.2 22 49.1

India 5.0 43 17.3 33 77.6

Papua New Guinea 3.6 41 84.3 3 7.3

Vietnam 5.5 41 27.1 26 64.2

Cambodia 6.7 32 25.8 20 63.4

Lao 3.9 23 20.5 16 71.8

Bhutan 4.6 21 64.2 7 35.8

Nepal 5.6 19 26.3 12 65.0

Bangladesh 3.1 19 28.1 12 63.5

Myanmar 2.2 6 12.9 5 86.5

(a) Expenditure based on the OECD SHA framework.

The AIHW is responsible for collecting, collating and reporting expenditure on health in

Australia each year. It is also the national coordinating body for the provision of most data

on social expenditures to the OECD. The AIHW’s responsibilities in this regard include

expenditure on welfare services, social security and housing as well as health.

86

The format that the AIHW uses for its national reports of expenditure on health is based on

one adopted by the World Health Organization (WHO) during the 1970s, known as the

Australian National Health Accounts (NHA). Australia’s reporting format has not changed

markedly since the AIHW’s first national health expenditure report in 1986, despite

considerable change in the way health care is delivered. The WHO has recently moved to

adopt a reporting framework based on a system of health accounts developed by the OECD.

In 2000, the OECD published guidelines for a new method of international reporting for

to encourage international consistency in the way health expenditure was reported

throughout the OECD membership. This International Classification for Health Accounts

(ICHA) classifies expenditure on health in terms of:

• health care by function (ICHA-HC)

• health care service provider industries (ICHA-HP)

• sources of funding health care (ICHA-HF).

The functional classification refers to the goals or purposes of health care. At the broadest

level these are disease prevention, health promotion, treatment, rehabilitation and

long-term care.

The provider classification is a list of health care provider types which has been refined and

modified from the International Standard Industrial Classification (UN 2002).

The funder classification follows the System of National Accounts 1993 (OECD 1994)

guidelines for the allocation of funds by sector.

The major difference between estimates derived using the Australian NHA and the OECD

System of Health Accounts (SHA) is the value of total expenditure. The NHA includes all the

‘health’ functional classifications. It also includes the following ‘health-related’ functional

classifications in its estimates of total health expenditure:

• capital expenditure of health care provider institutions

• research and development in health

• food, hygiene and drinking water control

• environmental health

• administration and provision of social services in kind to assist living with disease and

impairment

• administration and provision of health-related cash-benefits.

‘Education and training of health personnel’ is excluded from the NHA estimates of total

health expenditure.

The SHA, on the other hand, includes, as well as the ‘health’ functions, only

HC.R.1—‘Capital formation of health care provider institutions’—from the ‘health-related’

functions in its total health expenditure estimates. In 2005–06 (OECD year 2005), the estimate

of total health expenditure using the NHA was $86.9 billion, $2,149 million or 2.5% higher

than the SHA total for health expenditure ($84.7 billion) (Tables 1 and 56).

The AIHW’s health expenditure database for all years since 1998–99 is structured in a way

that allows simultaneous reporting according to the NHA reporting matrix and the SHA

classifications. Through the work of the Health Expenditure Advisory Committee (HEAC),

an Australian System of Health Accounts is being developed that can be mapped to the

OECD’s SHA, but which uses terminology that is more relevant to the Australian domestic

87

situation. When this is achieved, the Australian SHA will be better able to provide more

detailed and comprehensive data for both national purposes and international

comparability.

The following three tables provide a snapshot of the data for 2004–05 and 2005–06, following

the OECD format.

The definitions of OECD categories can be found at:

http://www.oecd.org/dataoecd/49/51/21160591.pdf.

HF.1.1 General government excluding social security funds 52,990 66.9 56,808 67.0

HF.1.1.1 Central government 34,010 42.9 35,492 41.9

HF.1.1.2, 1.1.3 Provincial/local government 18,980 24.0 21,316 25.2

HF.1.2 Social security funds — — — —

HF.2.1 Private social insurance — — — —

HF.2.2 Private insurance enterprises (other than social

insurance) 6,038 7.6 6,284 7.4

HF.2.3 Private household out-of-pocket expenditure 14,329 18.1 15,415 18.2

HF.2.4 Non-profit institutions serving households (other

than social insurance) — — — —

HF.2.5 Corporations (other than health insurance) 5,841 7.4 6,222 7.3

88

HC.1.1, 2.1 Curative & rehabilitative care 26,493 33.5 28,900 34.1

HC.3.1 Long-term nursing care 387 0.5 415 0.5

HC.1.2, 2.2 Day cases of curative & rehabilitative care — — — —

HC.3.2 Day cases of long-term nursing care — — — —

HC.1.3, 2.3 Outpatient curative & rehabilitative care 25,080 31.7 26,746 31.6

HC.1.3.1 Basic medical and diagnostic services 9,252 11.7 9,732 11.5

HC.1.3.2 Outpatient dental care 5,054 6.4 5,327 6.3

HC.1.3.3 All other specialised health care 2,781 3.5 2,994 3.5

HC.1.3.9 All other outpatient curative care 6,357 8.0 6,946 8.2

HC.2.3 Outpatient rehabilitative care 1,637 2.1 1,748 2.1

HC.1.4, 2.4 Home care (curative & rehabilitative) — — — —

HC.3.3 Home care (long-term nursing care) 27 — 25 —

HC.4.1 Clinical laboratory 1,374 1.7 1,478 1.7

HC.4.2 Diagnostic imaging 1,602 2.0 1,745 2.1

HC.4.3 Patient transport and emergency rescue 1,482 1.9 1,506 1.8

HC.4.9 All other miscellaneous ancillary services 66 0.1 32 —

HC.5.1 Pharmaceuticals and other medical

non-durables 11,637 14.7 12,030 14.2

HC.5.2 Therapeutic appliances and other medical

durables 2,617 3.3 2,797 3.3

HC.6 Prevention and public health services 1,245 1.6 1,263 1.5

HC.7 Health administration and health insurance 2,521 3.2 2,626 3.1

HC.R.1 Capital formation of health care provider

institutions 4,669 5.9 5,167 6.1

(a) In-patient includes all admitted patient services whether they are overnight admissions or same-day admissions.

89

HP.1 Hospitals 29,718 37.5 32,421 38.3

HP.2 Nursing and residential care facilities 28 — 27 —

HP.3 Providers of ambulatory health care 27,665 34.9 29,422 34.7

HP.3.1 Offices of physicians 11,155 14.1 11,732 13.8

HP.3.2 Offices of dentists 5,064 6.4 5,337 6.3

HP.3.3–3.9 All other providers of ambulatory health care 11,447 14.5 12,353 14.6

HP.4 Retail sales and other providers of medical

goods 13,685 17.3 14,192 16.8

HP.5 Provision and administration of public health

programs 1,245 1.6 1,260 1.5

HP.6 General health administration and insurance 6,856 8.7 7,406 8.7

HP.6.1 Government administration of health 3,378 4.3 3,734 4.4

HP.6.2 Social security funds — — — —

HP.6.3, 6.4, 6.9 Other social insurance 3,478 4.4 3,672 4.3

HP.7 Other industries (rest of the economy) — — — —

HP.9 Rest of the world 2 — 1 —

90

was classified to health and expenditure for low-level care services was classified to welfare

services. All expenditure on residential aged care facilities is now classified to welfare

services in accordance with the classification practices of the Department of Finance and

Administration (DoFA), the ABS, the DoHA, Productivity Commission and Department of

Treasury. This chapter provides:

• some historical background on aged care policy that relates to the classification of aged

care expenditure between health and welfare services

• an explanation as to why all residential aged care expenditure is now being classified as

welfare services.

The DoFA classifies all Australian Government residential aged care expenditure under

Government Purpose Classification (GPC) 2622 ‘Welfare services for the aged’, and therefore

all residential aged care expenditure is included under the social security and welfare

function for reporting in the annual Final Budget Outcome papers and other Budget papers

produced by the Treasury. These data are passed to the ABS which reports residential aged

care expenditure under ‘Welfare services for the aged’.

The DoHA reports residential aged care subsidies under Outcome 3 Aged Care and

Population Ageing in its annual reports. It does not split these subsidies between ‘health’

and ‘welfare’ services.

The Productivity Commission publishes information on aged care expenditure in a number

Commission reports all residential aged care expenditure under the Community services

(Productivity Commission 2005), projection of aged care expenditure (including all

residential aged care expenditure) was separate from health expenditure.

In the Intergenerational Reports (Treasury 2002, 2007), the Department of Treasury provides

information on the impact of an ageing population on the long-term sustainability of

government finances. It includes projections for spending and revenue. Information on

Australian Government aged care spending and revenue is included in a section titled

‘Health and aged care’ with information on aged care (including residential aged care)

reported separately to health.

The AIHW has been splitting residential aged care expenditure into health and welfare

based on the Resident Classification Scale (RCS) categories. That is, expenditure for residents

classified as RCS 1 to 4 (high level care needs) was allocated to health expenditure and

expenditure for those classified as RCS 5 to 8 (low level care) was allocated to welfare

services expenditure.

91

DoFA GPC2622—Welfare services for the aged Final Budget Outcome, Treasury (annual)

ABS Same as DoFA Government Finance Statistics (annual)

DoHA Not split between health and welfare Annual report: Outcome 3 Aged Care and

Population ageing

Treasury Aged care Intergenerational Report (Treasury 2002 &

2007)

Except for the AIHW, in recent times Australian Government agencies have been reporting

residential aged care expenditure in community services/welfare services or aged care

categories. Section 6.2 provides a summary of history from 1974 to the present on changes in

aged care policy and its influence on classification. Section 6.3 provides a summary of the

results obtained from more recent evidence on the nature of care provided to the aged in

residential care facilities which inform discussion on the classification of residential aged

care expenditure to welfare services.

Up to 1996, there were two separate Acts underpinning funding on nursing homes and

hostels for the aged or people with disabilities. Payment of nursing home benefits was

hospital benefits provision of section 51 (xxiiiA) of the Constitution. These were benefits paid

by the government to individual patients in nursing homes (under section 49B of the

National Health Act 1953). The fact that the hospital benefits provision of the constitution

was used was an indication that nursing home benefits were seen as having a health

homes, rather than to individuals. It is likely, however, that it too came under Section 51

(xxiiiA).

of section xxiii of the Constitution, which gives the Parliament of the Commonwealth power

to legislate with respect to Invalid and old-age pensions. It took the form of capital and

recurrent funding to institutions that provided care to aged and/or disabled people.

The classification to health and welfare services in relation to the Australian Government’s

expenditure on services to the aged and the frail has changed over time. The Australian

Government viewpoint on nursing homes during the earlier period, particularly 1974 to 1984

was that nursing homes were clearly ‘health’ institutions. This was evident both from the

admissions procedures adopted in respect of patients and the nature of the type of care that

was required to be delivered to patients. However, this view has gradually changed when

92

new evidence on the nature of care provided to older people living in residential care

home and hostel sectors. The Australian Government’s new residential aged care facilities

funding arrangements enabled a single form of funding in respect of care provided to all

people cared for in residential aged care facilities (formerly hostels and nursing homes).

Funding varied according to each resident’s assessed need. The instrument used in assessing

needs is called the Resident Classification Scale (RCS). There are 8 RCS categories from

RCS 1 to RCS 8. These are ranked progressively in terms of intensity of need. RCS 1 to 4 are

described as high-level care, and RCS 5 to 8 are low-level care. Funding for residents

assessed in category 1 was the highest. Residents classified in category 8 do not attract any

funding.

1974 Hospitals and Allied Services

Advisory Committee (HASAC)

Nursing home staffing

levels and physical

standards

Eligibility certified by a registered medical practitioner

Minimum three hours care by registered nurse per

week, and seven hours care by unregistered nurses

1982 The House of Representative

Standing Committee on

Expenditure

Accommodation and

home care for the aged

Recommendations of uniform standard ‘nursing

hours’

1985 The Senate Select Committee

on Private Hospitals and

Nursing Homes

Accommodation and

home care for the aged

Recommendations of uniform standard ‘nursing

hours’

1986 Department of Community

Services and Health

Nursing Homes and

Hostels Review

Home and Community Care (HACC) extended

through community housing for the elderly, selfcontained

units and hostels to nursing home care

Various programs supporting residential facilities for

the aged and disabled were amalgamated into a

single ‘Residential Care Program’

The differential between ‘personal care subsidy’ for

residents in hostels, and ‘ordinary nursing home

benefit’ provided to moderately dependent patients in

nursing homes, was narrowed

‘Ordinary nursing care’ and ‘extensive nursing care’

categories were differentiated. This allowed ordinary

care beds to be progressively absorbed into providing

‘extensive nursing care’

1997 Aged Care Act 1997 Structure of aged care

services

Nursing home and hostel sectors were unified

Providers offered both high and low care

Single funding to all people cared for in residential

aged care facilities, through the 8 Residential

Classification Scale (RCS)

Current The Australian Government

2004 Budget announcement

Implementation of

changes over four years

Replacement of the 8 RCS funding classifications with

the 3 Aged Care Funding Instruments (ACFI)—low,

medium and high

Some have associated higher level care categories with higher needs for health services.

However, just because illness is the cause of the need for care does not mean that the

provided type of care has a health purpose. A service has a health purpose if the service is

actively aiming to improve a person’s health or to prevent illness or injury. Most residential

aged care services have a care focus rather than a cure focus. Most of the services are to cater

93

for needs for personal care that have developed because of declines in health status in the

past, but are not directly attempting to reverse that health status decline.

The questions used to determine the resident’s intensity of care needs, and thus the amount

of funding paid, cover the areas listed below (Table 61). The majority of these activities

(excluding 17 to 19) fall under the category of personal care assistance rather than health

care. These activities can be performed by people without health qualifications, and this is

another indication that the activities do not primarily have a health purpose. For funding

purposes, each resident is classified according to the answers given to the RCS questionnaire.

Each answer has a different weight applied and the sum of these weights gives an overall

score for the resident.

1 Communication 0.00 0.28 0.36 0.83

2 Mobility 0.00 1.19 1.54 1.82

3 Meals and drinks 0.00 0.67 0.75 2.65

4 Personal hygiene 0.00 5.34 14.17 14.61

5 Toileting 0.00 5.98 10.65 13.70

6 Bladder management 0.00 2.22 3.82 4.19

7 Bowel management 0.00 3.32 5.72 6.30

8 Understanding and undertaking living activities 0.00 0.79 1.11 3.40

9 Problem wandering and intrusive behaviour 0.00 0.80 1.58 4.00

10 Verbally disruptive or noisy 0.00 1.19 1.75 4.60

11 Physically aggressive 0.00 2.34 2.69 3.05

12 Emotional dependence 0.00 0.28 1.50 3.84

13 Danger to self or others 0.00 1.11 1.54 1.98

14 Other behaviour 0.00 0.91 1.82 2.61

15 Social and human need—care recipient 0.00 0.95 1.98 3.01

16 Social and human need—families and friends 0.00 0.28 0.55 0.91

17 Medication 0.00 0.79 8.55 11.40

18 Technical and complex nursing procedures 0.00 1.54 5.54 11.16

19 Therapy 0.00 3.64 6.10 7.01

20 Other services 0.00 0.71 1.46 2.93

the lower need A, B and C categories. And A is lower need than B, and B lower need than C.

In the 2004 Budget, the Australian Government announced a number of further changes to

the residential aged care system. These changes are being implemented progressively over

four years and have implications for data reporting from 2004–05 onwards. The changes with

data implications are:

• replacement of the eight RCS funding classifications with Aged Care Funding Instrument

(ACFI) categories:

–low

–medium

–high, and

• two new supplements, each paid at three levels (low, medium and high) for:

–mental and behavioural conditions, including dementia, and

–the other for complex health care needs, including palliative care.

From 20 March 2008 a new assessment instrument, the ACFI, which uses a different question

set (12 questions) to the RCS classifications, will be introduced (DoHA 2007). From the date

94

of ACFI’s introduction for the foreseeable future, the residential data set will be a mix of

reporting based on a new question set (the ACFI) and reporting based on the previous

question set (the 20 RCS questions) (Table 61).

The AIHW has estimated the funding that is allocated for each RCS question for the

residential aged care population as at June 2003. The 20 questions used as the basis for these

The following three areas could be considered health services: medication; technical and

complex nursing procedures; and therapy. The other 17 areas, which mostly involve

assistance with activities of daily living, could be considered welfare services. On that basis,

the three areas allocated to health (RCS questions 17 to 19) accounted for 28% of the total

government basic subsidy for residential aged care (Table 62). The other 17 areas accounted

for 72% of the government basic subsidy.

allocated to high level care and therefore to health, and RCS 5–8 categories were allocated to

low level care and therefore to welfare services. This method resulted in a split of

approximately 78% to health and 22% to welfare services.

1 Communication 27 0.6

2 Mobility 99 2.2

3 Meals and drinks 65 1.5

4 Personal hygiene 942 21.2

5 Toileting 618 13.9

6 Bladder management 191 4.3

7 Bowel management 363 8.2

8 Understanding and undertaking living activities 115 2.6

9 Problem wandering and intrusive behaviour 69 1.6

10 Verbally disruptive or noisy 118 2.7

11 Physically aggressive 50 1.1

12 Emotional dependence 132 3.0

13 Danger to self or others 78 1.8

14 Other behaviour 143 3.2

15 Social and human need—care recipient 148 3.3

16 Social and human need—families and friends 33 0.7

17 Medication 493 11.1

18 Technical and complex nursing procedures 376 8.5

19 Therapy 357 8.0

20 Other services 24 0.5

95

Given that over two-thirds of the expenditure for residential care facilities is of a welfare

services nature rather than a health nature, it is no longer appropriate to continue to use the

high level care/low level care split whereby 78% of residential aged care expenditure was

allocated to health and 22% to welfare services. It has been decided, after consultation with

DoHA, the ABS and the Health Expenditure Advisory Committee to classify all expenditure

for residential aged care facilities under welfare services, as the majority of this expenditure

has a welfare purpose. This is in accord with the classification practice of the DoFA, the ABS

and other government agencies.

All data appearing in this report for prior years have been revised accordingly.

There is an argument for splitting residential aged care expenditure about two-thirds to

welfare services and one-third to health, but such a split is difficult to estimate technically

and is not in accord with existing management and program classifications so is not a

practically realistic option.

1999–00 5,043 5,979

2000–01 5,273 6,252

2001–02 5,599 6,225

2002–03 6,010 6,461

2003–04 7,018 7,279

2004–05 7,247 7,247

2005–06 7,492 7,185

(a) Residential aged care subsidies from DVA, DoHA, state and territory

governments, non-government organisations, injury compensation insurers,

and fees from residents. Also includes payments for the Extended Aged Care

in the Home program.

(b) Constant price health expenditure for 1999–00 to 2005–06 is expressed in

terms of 2004–05 prices.

In 2005–06, recurrent expenditure on residential aged care facilities by the Australian

government, state and territory governments, and co-contribution fees paid by residents was

estimated at $7,492 million (Table 63). In real terms, there was a 20.2% increase in recurrent

expenditure on residential aged care facilities between 1999–00 ($5,979 million in constant

prices) and 2005–06 ($7,185 million).

Allocating all residential care subsidies to welfare services has a significant impact on the

total amount of expenditure designated to health and to welfare services, and therefore the

health expenditure and welfare services expenditure to GDP ratios (Table 64). Compared

with the previous allocation method, the health expenditure to GDP ratio in 2004–05 is lower

96

by 0.65 percentage points and the welfare services expenditure to GDP ratio is higher by

0.65 percentage points (Table 64). However, under both approaches the combined

health/welfare services expenditure to GDP ratio remains the same at 12%.

2004–05 9.7 2.4 9.05 3.0

2005–06 9.6 2.4 9.0 3.0

97

Health expenditure is reported domestically using the Australian National Health Accounts

(NHA) framework. This framework, which has operated since the early 1960s, is based on a

national health expenditure matrix showing areas of expenditure by sources of funding.

Since 1998, the AIHW, which has responsibility for developing estimates of national health

expenditure, has collated and stored its health expenditure data in a way that enables it to

simultaneously report national health expenditure according to the national framework and

according to the OECD’s System of Health Accounts (OECD 2000).

In 2003, the AIHW established the HEAC, comprising data users and providers, to provide

advice on health expenditure reporting in Australia. The committee, which meets twice a

year, consists of representatives of Australian government agencies—DoHA, ABS, DVA,

Commonwealth Grants Commission, Medicare Australia and the Private Health Insurance

Administration Council (PHIAC)—and each state and territory health department. This

committee has now expanded to include a representative from the Ministry of Health New

Zealand, and a health economist. The terms of reference for this committee are to provide

advice to the AIHW on:

• data sources, analysis and presentation of its estimates of health expenditure in Australia

• integration of the AIHW’s health expenditure collections with all other Australian

sub-national and national collections, and with international frameworks and collections

of health expenditure statistics

• longer term directions related to the reporting of expenditure on health, both within

Australia and to international bodies such as the OECD and WHO.

Under the auspices of the HEAC, the AIHW has begun developing a national minimum

dataset (NMDS) for government funded health expenditure (GHE) which will enhance the

current reporting of health expenditure data.

An NMDS is a mandated national data collection for all states and territories. It is dependent

upon national agreement to collect and supply uniform core data towards a national

collection. The most important aspect of an NMDS is the agreement between all relevant

parties. An NMDS agreement includes data standards specified using data elements, as well

as the scope for the application of those data elements (AIHW 2007c).

Expenditure and funding data for health goods and services are published annually in the

the public and private sectors. The state and territory health authorities currently supply

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their data to the AIHW. The current data collection instrument contains a mix of provider

(e.g. public hospitals) and function categories (e.g. mental health services).

Policy areas increasingly want health expenditure information that they can use to identify

the cost of specific programs, such as immunisation programs or mental health programs, as

well as how much was spent by providers such as hospitals.

The proposed approach comprises data provided under the GHE NMDS which will include

government expenditure data from the public, private and community sector health systems,

including expenditure on health services such as hospitals and residential care services,

patient transport, medical, other health practitioners, dental, community and public health

services, and research and administration costs and expenditure provided for health goods

such as pharmaceuticals and aids and appliances. It will also include information on the

source of public and private revenue. These data will be supplied to the AIHW by existing

data providers.

There will be four categories to capture expenditure and revenue:

• provider/organisation

• program/function

• source of public and private revenue

• economic type framework.

The first three of these categories use classifications which correspond to those used by the

OECD in its System of Health Accounts. The Economic type framework classification is an

ABS classification. Some additional classification sources have also been used:

• ABS Australian and New Zealand Standard Industry Classification

• ABS Government Purpose Classification

• Australian Accounting Standards Board 1049 and 118

• existing National Health Data Dictionary items.

Provision of data under the GHE NMDS is expected to begin from the collection period

1 July 2008 to 30 June 2009.

‘Health expenditure’ is the sum of expenditure on health goods and services which are used

up within a year and health-related investment which has a longer life.

Expenditure on health goods and services used up within a year includes expenditure on

health goods (medications, aids and appliances), health services (clinical interventions); and

other health services such as expenditure on public health, research and administration.

These expenditures are collectively termed recurrent expenditure. Depreciation (or capital

consumption) is part of recurrent expenditure but in these accounts only non-government

capital consumption is incorporated in recurrent expenditure. Government capital

consumption is reported separately.

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Health-related investment is referred to as gross fixed capital formation or capital

expenditure. In this publication the term ‘capital expenditure’ is used.

The AIHW’s definition of health expenditure closely follows the definitions and concepts

provided by the OECD’s SHA (OECD 2000) framework. It excludes:

• expenditure that may have a ‘health’ outcome but that is incurred outside the health

sector (such as expenditure on building safer transport systems, removing lead from

petrol, and educating health practitioners)

• expenditure on personal activities not directly related to maintaining or improving

personal health

• expenditure that does not have health as the main area of expected benefit.

Some of the expenditure from non-government health organisations, such as the National

Heart Foundation and Diabetes Australia is not included in these accounts. In particular, as

data are not available, most of the non-research expenditure funded by donations to these

organisations is not included.

Total health expenditure reported for Australia (both domestically and internationally) is

slightly underestimated in that it excludes health expenditure on health services provided by

the Australian Defence Force, some school health expenditure and some health expenditure

incurred by corrective services institutions in the various states and territories.

It is arguable that there is some over-estimation of health expenditure in the dental area.

Expenditure on orthodontics is included in dental expenditure, but the principal purpose of

most of this expenditure is cosmetic and health is only a secondary purpose. Thus it

probably should not be part of health expenditure. On the other hand, expenditure on

toothbrushes and toothpaste is not currently included in health expenditure but it could be

argued that the primary purpose of this expenditure is health with the secondary purpose

being personal care/hygiene.

Difficulties in separating expenditures incurred by local governments on particular health

functions from those of state and territory governments mean that these funding sources are

often combined. However, the ABS data indicate that the contribution of local governments

is relatively small.

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Public hospital Includes public psychiatric and non-psychiatric hospitals.

A public hospital is a health care facility established under Commonwealth, state or

behalf of state and territory governments and authorised to provide treatment and/or care

to patients. Such hospitals are recognised under the AHCAs and they include some

hospitals, such as some denominational hospitals which are privately owned.

Public hospital services Services provided to a patient who is treated by a public hospital (as defined above), but

services, public health and health research undertaken by the hospital. Can include

services provided off the hospital site such as hospital in the home dialysis or other

services.

Private hospital A private hospital is a health care facility, established under Commonwealth, state or

provide treatment and/or care to patients. A private hospital is not defined by whether it is

privately owned but by whether it is not a public hospital (as defined above). Private

hospital expenditure includes expenditures incurred for public patients being treated in a

private hospital under contract.

Patient transport services

Expenditure by organisations primarily engaged in providing transportation of patients by

ground or air, along with health (or medical) care. These services are often provided

during a medical emergency but are not restricted to emergencies. The vehicles are

equipped with lifesaving equipment operated by medically trained personnel. Includes

public ambulance services or flying doctor services such as Royal Flying Doctor Service

and Care Flight. Also includes patient transport programs such as patient transport

vouchers or support programs to assist isolated patients with travel to obtain specialised

For 2003–04 onwards, this category may include patient transport expenses that are

included in the operating costs of public hospitals.

Medical services Comprises medical services funded by the Medicare Benefits Scheme, compulsory Motor

Vehicle Third Party Insurance, Workers Compensation Insurance, Health Services

Australia and from patient out-of-pocket payments.

Includes services listed in the Medical Benefits Schedule (MBS) that are provided by

registered medical practitioners. Most medical services in Australia are provided on a

fee-for-service basis and attract benefits from the Australian Government under Medicare.

Also includes medical services provided to private admitted patients in hospitals,

non-MBS medical services such as the provision of vaccines for overseas travel, as well

as some expenditure that is not based on a fee-for-service (i.e. alternative funding

arrangements).

Excludes medical services provided to public admitted patients in public hospitals and

medical services provided to public patients at outpatient clinics in public hospitals.

Other health practitioners Services provided by health practitioners (other than doctors and dentists). These include

chiropractors, optometrists, physiotherapists, speech therapists, audiologists, dietitians,

podiatrists, homeopaths, naturopaths, practitioners of Chinese medicine and other forms

of traditional medicine, etc.

Medications Comprises benefit-paid pharmaceuticals and other medications.

Benefit-paid pharmaceuticals Pharmaceuticals in the PBS and the RPBS (see Glossary) for which the Australian

Government paid a benefit.

Other medications Pharmaceuticals for which no PBS or RPBS benefit was paid and other medications.

Includes:

less than, the statutory patient contribution for the class of patient concerned

criteria for payment of benefit under the PBS or RPBS

cold medicines, vitamins and minerals, herbal and other complementary medicines,

and a range of medical non-durables, such as bandages, bandaids and condoms.

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Aids and appliances Durable medical goods dispensed to ambulatory patients that are used more than

once, for therapeutic purposes, such as glasses, hearing aids, wheelchairs and

orthopaedic appliances and prosthetics that are not implanted surgically but are

external to the user of the appliance.

Excludes prostheses fitted as part of admitted patient care in a hospital.

Community health Non-residential health services offered by establishments to patients/clients, in an

integrated and coordinated manner in a community setting, or the coordination of

health services elsewhere in the community.

Includes:

Strait Islander people, women, youth and migrants, as well as family

planning services, alcohol and drug treatment services, etc.

delivered in a community setting.

Public health Services provided and/or funded by governments that are aimed at protecting and

promoting the health of the whole population or specified population subgroups

and/or preventing illness or injury in the whole population or specified population

subgroups.

Public health services do not include treatment services.

Dental services A range of services provided by registered dental practitioners.

Includes oral and maxillofacial surgery items; orthodontic, pedodontic and

periodontic services; cleft lip and palate services; dental assessment and

treatment; and dental items listed in the MBS.

State and territory dental services School dental programs, community dental services and hospital dental programs

funded by state and territory health authorities.

Health administration Activities related to the formulation and administration of government and

non-government policy in health and in the setting and enforcement of standards

for health personnel and for hospitals, clinics, etc.

Includes the regulation and licensing of providers of health services.

Where possible administrative costs related to the delivery of particular health

goods and services are added to the direct expenditure on those goods and

services.

Health research Research undertaken at tertiary institutions, in private non-profit organisations and

in government facilities that has a health socioeconomic objective.

Excludes commercially oriented research carried out or funded by private

business, the costs of which are assumed to be included in the prices charged for

the goods and services (e.g. medications that have been developed and/or

supported by research activities).

Capital expenditure Expenditure on fixed assets (e.g. new buildings and equipment with a useful life of

more than a year).

Capital consumption Capital consumption is otherwise known as depreciation and represents the

amount of fixed capital used up each year.

Non-specific tax expenditure The only tax expenditure currently included here is the medical expenses tax

rebate. This becomes available to individuals to claim through the taxation system

if they have out-of-pocket medical expenses over a specified limit in an income

year. For the 2005–06 income year, the tax rebate was 20 cents for each $1 by

which a taxpayer’s net medical expenses exceeded $1,500 (the threshold).

The Australian Treasury estimates other tax expenditure in the health area, such

as the cost of exempting low income earners from the Medicare levy. These tax

expenditures are not included in the Australian NHA framework.

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The total expenditure and revenue data used to generate the tables are, to the greatest extent

possible, produced on an accrual basis; that is, expenditures reported for each area relate to

expenses incurred in the year in which they are reported. This is not, however, achievable in

all cases. For example, where the data on which the estimates are based are provided by a

funding source, such as the private health insurance funds, they sometimes relate to the date

of processing claims. These do not necessarily coincide with the date on which the related

service was provided. As a further consequence, the contribution of that funding source may

be understated in one year and overstated in another.

A very small part of public hospital expenditure is funded by private practitioner facility

fees. This revenue is in turn partly funded by the Medicare Benefits Scheme and that money

is reported separately in the medical services row of the health expenditure matrix.

Therefore there is a partial double count of the public hospital expenditure funded from

private practitioner facility fees and medical services.

The AIHW gathers information on which to base its estimates of health expenditure from a

wide range of sources. The ABS, the Department of Health and Ageing, and state and

territory health authorities provided most of the basic data used in this publication. Other

major data sources are the DVA, the PHIAC, Comcare, and the major workers’ compensation

and compulsory third-party motor vehicle insurers in each state and territory.

The state and territory tables are intended to give some indication of differences in the

overall levels of expenditure on health in the states and territories; they do not necessarily

reflect levels of activity by state and territory governments. For example, service providers

located in the different states and territories pursue a variety of funding arrangements

involving inputs from both government and non-government sources. As a result, one state

or territory may have a mix of services and facilities that is quite different from that in

another state. The estimates will enable a state or territory government to monitor the impact

of policies on overall expenditure on health goods and services provided within its borders.

It should be noted that estimates of funding by state and local government in respect of a

particular state/territory table are derived by deducting from gross health expenditure

estimates, any Australian Government grants and other revenue received by the state and

territory health authorities. This funding relates to all funding by state/territory and local

governments on services provided in the state or territory concerned. Some of the services

concerned may actually be the subject of cross-border reimbursement arrangements between

the states and territories.

Where funding data are provided only on a national basis, as is the case for some Australian

Government programs, the AIHW calculates allocations for those expenditures by state and

territory.

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At present the matrices for each state and territory prior to 2002–03 indicate that state and

territory governments provided no funding for services provided by private hospitals. This

is incorrect, because there are at least two situations in which they do provide funding for

services provided by private hospitals, namely where:

(a) a state or territory government or an area health service has contracts with private

hospitals to provide services to public patients

(b) a public hospital purchases services from a private hospital in respect of some of its

public patients.

The AIHW has begun to collect the first of these data flows from 2002–03 and they are

included in both the national and the state and territory matrices from that year.

The second of these flows would currently be included in total expenditure, but they would

be counted as funding for services provided by public hospitals (so long as the related

purchases are being included in the reported expenses of the purchasing hospitals in the

public hospital establishments data).

The bulk of the expenditures by the Australian Government can readily be allocated on a

state and territory basis. These include:

• specific purpose payments (SPPs) to the states and territories for health purposes

• Medicare benefits payments

• pharmaceutical benefit payments

• Department of Veterans’ Affairs expenditure.

Data on other health funding by the Australian Government are generally not available on a

state and territory basis. In those cases, indicators are used to derive state and territory

estimates. For example, non-Medicare payments to medical service providers aimed at

enhancing or modifying medical practice are allocated according to the proportion of

vocationally registered general practitioners in each state or territory.

The ABS produces annual estimates of public finance, which contribute information used in

the AIHW National Health Accounts. These include expenses and revenues for all levels of

government.

Until 1996–97, public finance data were reported on a cash basis. From 1997–98, reporting

has been on an accrual basis for most jurisdictions. Where states or territories have not

reported on an accrual basis, their cash accounts have been modified by the ABS to conform

to accrual definitions. State and territory data included in the ABS’s public finance database

are provided by each of the state and territory treasuries. The GPC developed by the ABS is

used to allocate expenses and revenues by function.

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There have always been difficulties in accurately allocating government expenditures in the

public finance database according to purpose (function). This is particularly the case at the

lower levels of disaggregation.

Since the move to accrual-based accounting, the emphasis of the ABS and the Treasury

departments has been on ensuring that transaction-type classifications of expenditure are

correct (that is, ensuring that expenses and revenues are correctly classified in the state and

territory accounts). To date, less attention has been given to the verification of expenditure in

the public finance database according to function. As a consequence, only the ABS’s

estimates of total health expenditure by state and local governments are used in this

publication as a guide to the overall movements in state and local government recurrent

funding for health from one year to the next.

The ABS provided research expenditure data from its Research and Experimental

Development Survey series (ABS 2004a, 2004b, 2004c, 2004d, 2005a, 2006). Some of the state

allocations in the supplied 2004–05 data were derived by the ABS.

There is a break in series due to differences in definitions of public hospital and public

hospital services between 2002–03 and 2003–04.

Prior to 2003–04, the AIHW Public Hospitals Establishments (PHE) collection data were used

to derive public hospital expenditure estimates for each state and territory. The PHE data

comprises expenditure on goods and services provided in hospitals, including expenditure

on the components of community and public health services, dental and patient transport

services and health research that are provided in public hospitals. This expenditure is

referred to as ‘public hospital’ expenditure.

In contrast, ‘public hospital services’ estimates, provided directly from the state and territory

health authorities, are reported for 2003–04 onwards and reflect the level of expenditure on

any community and public health services, dental and patient transport services and health

research expenditure undertaken in public hospitals. These expenditures are included under

their respective categories in the health expenditure matrix. For example, patient transport

services expenditure that prior to 2003–04 was captured as part of public hospital

expenditure, would now be captured as part of patient transport services expenditure.

The AIHW PHE collection was the source of data for state and territory expenditure on

public hospitals reported in Tables 33 to 37 and Figure 13.

State and territory funding for public hospitals was derived by subtracting Australian

Government grants and any other public hospital revenue from the PHE data.

Due to the above-mentioned change in definitions for public hospitals and public hospital

services, there is a resulting break in time series between 2002–03 and 2003–04 for

community and public health services and for dental and patient transport services.

In addition, for community health services, an indeterminate amount of domiciliary care

expenditure was included in the community health services data prior to 2003–04.

Domiciliary care, which includes home and community care (HACC) funding, is considered

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to be more a welfare service than a health service and for this report has been excluded

where possible from the community health services estimates.

Although valid comparisons across the discontinuity can be made for total health

expenditure, caution should be exercised when comparing data across the decade for these

four areas of expenditure.

Funding by the non-government sector is shown in the various state matrices in three broad

‘source of funds’ categories:

• health insurance funds

• individuals

• other non-government sources.

Funding by health insurance funds on health goods and services within a state or territory is

assumed to be equal to the level of benefits paid by health insurance funds that operate from

that state or territory. In the case of New South Wales and the Australian Capital Territory,

the NSW funds cover ACT residents. Therefore private health insurance benefits cannot

separate private health insurance benefits for hospitals between the ACT and NSW, but for

non-hospital benefits, the benefits for both NSW and ACT are included in the NSW tables B1

to B3 and no benefits are included in the ACT tables B19 to B21.

In all years from 1997–98, funding by health insurance funds has been reduced by the extent

of the Australian Government subsidy through the Private Health Insurance Incentives

Scheme (up until the end of 1998) and the 30% rebate on private health insurance

contributions (since 1999).

Estimates of expenditure by individuals on:

• dental services

• other health practitioners

• aids and appliances

for 2002–03 onwards mostly rely on detailed private health insurance data from PHIAC. The

previous methods relied on high-level ABS data which proved to be unreliable and were

subject to substantial revisions over time. The new methodology uses the growth in the cost

of services combined with the change in proportion of the population who have ancillary

cover from year to year to project forward the individual out-of-pocket expenditure for these

categories. Funding of these services by private health insurance funds and injury

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compensation insurers are deducted from these estimates to arrive at the estimates of

individuals’ out-of-pocket funding.

Estimates of expenditure by individuals on patient transport services are based on data from

the Productivity Commission’s Report on Government Services (SCRCSSP 1999 and 2003,

SCRGSP 2007) from 1997–98 onwards. Prior to 1997–98, estimates were derived from PHIAC

data.

Workers compensation and third party motor vehicle insurance payments comprise the

majority of expenditure for this category. The Institute obtains these data from the respective

injury compensation insurers in each state and territory.

There are nine types of deflators (see Appendix D for more information) used in this report

(Table 66). Most deflators are very specific to the type of expenditure they are applied to. For

example, all hospitals use the government final consumption expenditure (GFCE) hospitals

and nursing homes deflator.

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Public hospitals(a) / Public hospital services(a) GFCE hospitals and nursing homes

Private hospitals GFCE hospitals and nursing homes

Patient transport services GFCE hospitals and nursing homes

Medical services Medicare medical services fees charged

Dental services Dental services(b)

Other health practitioners Other health practitioners(b)

Community health and other Professional health workers wage rate index(b)

Public health GFCE hospitals and nursing homes

Benefit-paid pharmaceuticals PBS pharmaceuticals

All other medications HFCE on chemist goods

Aids and appliances Aids and appliances(b)

Administration Professional health workers wage rate index

Research Professional health workers wage rate index

Capital expenditure Gross fixed capital formation

Capital consumption Gross fixed capital formation

Non-specific tax expenditure Professional health workers wage rate index

(a) See Box 3 for details on the distinction between public hospitals and public hospital services.

The national and the state and territory tables in Appendixes A and B have some cells for

which there is no expenditure recorded. The reasons for this are many, but the main ones

are:

(i) There are assumed to be no funding flows because they do not exist in the institutional

framework for health care funding.

(ii) The total funding is so small that it rounds to less than $500,000.

(iii) A flow of funds exists but it cannot be estimated from available data sources.

(iv) Some cells relate to ‘catch-all’ categories and the data and metadata are of such high

quality as to enable all expenditure to be allocated to specified areas. This, in turn,

means that there is no residual to be allocated to the ‘catch-all’ categories.

As to (i), for example, there are no funding flows by the state, territory and local government

for medical services and benefit-paid pharmaceuticals because these are funded by the

Australian Government, individuals and private health insurance funds through Medicare

and the PBS.

An example of (iii) is state and local government funding for private hospitals. There are

known to be funding flows in this area because state and territory governments are known to

contract with private hospitals to provide some hospital services to public patients. Data

have been inserted in the matrices from 2002–03 onwards, but not for earlier years.

As to (iv), in some years some small miscellaneous expenditures by the Australian

Government have been allocated to the category ‘Other non-institutional n.e.c.’. These could

not, at that time, be allocated to the specific health expenditure areas in the matrix. In other

years, better quality of description may have allowed those types of expenditures to be more

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precisely allocated. The expenditure category remains in order to show what total health

expenditure is over a long time period.

The per person estimates of expenditure are calculated using estimates of annual mean

resident population, which are based on quarterly estimated resident population data from

the ABS (ABS 2007b). See Appendix G for further details.

In earlier health expenditure publications, the term ‘ambulance and other’ was used instead

of ‘patient transport services’. These terms are identical in definition. See Table 65 for further

information on what comprises patient transport services.

In earlier health expenditure publications, public health expenditure was included with

community health expenditure because of the difficulty in obtaining reliable data about these

two categories of expenditure. These data were sourced from the ABS GFS and from the

states and territories themselves.

Separate and timely data on public health expenditure data, based on nine core public health

expenditure activities, have now become available from the AIHW’s Public Health

Expenditure Project. This project, which forms an integral part of the development of public

health information under the former National Public Health Partnership, is funded by the

DoHA. It aims to develop reliable and timely estimates of public health investment in

Australia, both in the public sector and in the non-government sector.

The estimates of public health expenditure in this report are based on the data in the

National Public Health Expenditure Project. Note that, at present, public health expenditure

data are collected only for key health departments and agencies of the Australian

Government and states and territories and includes depreciation.

Expenditure on other medications includes expenditure on over-the-counter medicines,

complementary medicines, over-the-counter medical non-durables, as well as prescribed

medications for which no benefits are paid under the PBS or RPBS, including PBS or RPBS

items which have a price less than or equal to the co-payment (see Table 65 for further

details).

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Over-the-counter medicines and medical non-durable goods are all therapeutic goods of a

type that are sold at pharmacies or supermarkets and are used to treat or cure a condition.

These include pharmacy-only medicines. Examples of over-the-counter medicines are

analgesics, antacids and cough medicines. Examples of over-the-counter medical

non-durable goods include non-prescription therapeutic goods that tend to be single-use

items, such as bandages, elastic stockings, incontinence articles, condoms and other

mechanical contraceptive devices. Goods that are for personal use such as tanning lotion are

not considered to be therapeutic, whereas after-sun lotion to treat sunburn would be within

the scope of health expenditure.

supermarket and pharmacy data for 2005–06 were obtained from Retail World (Flanagan

2006) and Synovate AZTEC (unpublished data) respectively.

The change in data source has enabled a more comprehensive breakdown of each category of

products sold at pharmacies and supermarkets. For example, the estimates are now able to

include the therapeutic proportion of the total sales of mouthwash sold at supermarkets. No

data are yet available for health goods sold through retail outlets such as convenience stores

and health food stores but such expenditure constitutes a small part of total over-the-counter

sales of pharmaceuticals and medical non-durables.

Non-benefit prescription expenditure was derived from total prescription volume and the

average price of private and under co-payment scripts. These data were provided by DoHA

and the Pharmacy Guild of Australia’s pharmacy survey.

Some components of total health expenditure have been revised since the publication of

classified as part of health expenditure. For this report and in all subsequent reports this

health to welfare expenditure has affected the health to GDP ratio. See Executive Summary

and Chapter 6 for further details.

The ABS Private Hospital Series (ABS, Cat. no. 4390.0) is the source for total spending on

private hospitals in this report. In previous reports, the ABS Private Hospital survey was the

source of the majority but not all funding on private hospitals. There were downward

revisions of total spending on private hospitals of $195 million for 2002–03, $524 million for

2003–04 and $587 million for 2004–05 from previously published estimates.

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A change in the methodology used to calculate individual out-of-pocket expenditure for

dental services, other health practitioner services and aids and appliances for 2002–03

onwards and patient transport services for 1997–98 onwards has resulted in substantial

expenditure for these categories.

In this report for 2002–03 onwards, individual out-of-pocket expenditure on dental services,

other health practitioners and aids and appliances were calculated from PHIAC data. This

change in methodology has resulted in a $486 million increase in individual expenditure on

other health practitioner services in 2002–03 compared to a $347 million increase for 2003–04

and a $362 million increase for 2004–05. In contrast, this change in methodology has

generally resulted in large downward revisions to individual out-of-pocket expenditure on

aids and appliances. In 2003–04 this decrease was $533 million while in 2004–05 it was

$1.1 billion. The change in methodology did not have a substantial impact on individual

out-pocket-expenditure for dental services.

Revisions to non-benefit scripts expenditure for 2001–02 onwards for this report have had an

impact on individual spending estimates for all other medications. For 2002–03 there was a

decrease of $562 million, while in 2004–05 there was an increase of $309 million for

individual spending on all other medications.

For 1997–98 onwards, Productivity Commission rather than PHIAC data were used to

calculate individual out-of-pocket expenditure on patient transport services. This change in

methodology has caused a downward revision to individual spending estimates for each

year. For 2002–03 to 2004–05, $171 million, $212 million and $258 million respectively, were

the downward revisions for individual spending on patient transport services.

The Institute received revised data from the Northern Territory health authority that has

resulted in revisions to Northern Territory funding of recurrent health expenditure for

2002–03 to 2004–05. There was a downwards revision of $18 million for 2002–03, an upward

revision of $112 million for 2003–04 and an upward revision of $37 million for 2004–05.

State government funding and individual out-of-pocket funding for public hospital services

has been revised for New South Wales and Victoria to ensure that the public hospital

services expenditure and revenue data included in this report for 2003–04 onwards was

based on data received from the state and territory health authorities. For New South Wales

this resulted in an increase in state government funding and a decrease in out-of-pocket

funding of public hospital services for 2003–04 and 2004–05. For Victoria this resulted in a

decrease for both state government funding and out-of-pocket funding of public hospital

services in 2003–04 and 2004–05. Prior to 2003–04, the AIHW Public Hospitals Establishments

collection was the main source for public hospitals expenditure data.

Domiciliary care services expenditure that was previously reported as part of community

health services expenditure by the state and territory health authorities has been removed

where possible from 2003–04 data onwards. Domiciliary care has more of a welfare than a

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