Healthcare unaffordable without massive change

It’s a truism that the answer you get depends very much on the kind of question that you ask. Last week’s landmark review by Heather Simpson into the health and disability system was no exception. Simpson’s summarised terms of reference don’t once mention the f-word: funding. Even the expanded terms of reference from back in 2018 mention it only once.

The Government didn’t want an answer to that question – it’s far too contentious. So, unsurprisingly, the final review doesn’t put any dollar figures on how much the new health system will cost. That’s partly a good thing. The review designed a model system from the ground up. The solution to all the state’s problems can’t always be to throw money at them.

But as we’ve discovered over the past three months, good healthcare doesn’t come cheap.

Fortunately, Simpson isn’t the sort of reviewer to shirk a challenge and the report makes some fairly extraordinary and costly recommendations when it comes to funding.

Each annual budget, the health minister starts with a blank slate when it comes to spending and each year the finance minister grants them an increase to keep up with increased costs.

This isn’t the case for other portfolios which face similar rising costs year on year. Education and social development (which includes things like benefits and superannuation) have their budgets automatically adjusted based on need.

The sum available to superannuitants should go up or down depending on the number getting superannuation, not on the ability of the minister to get their budget bid over a line.

One of the central planks of Labour’s ‘‘nine years of neglect’’ argument is that while National boosted the health budget during its time in office, the increase didn’t adequately take into account the growing and ageing population, meaning that it was in fact a cut.

Simpson’s recommendation would make this impossible. A government would legislate that each year the health budget would change in relation to the size of the population and the demographics within it. We already do this to a certain extent. District health boards have their funding divvied up depending on demographic changes – DHBs with large elderly populations get relatively more, DHBs with younger populations get relatively less.

There are political challenges to this. Governments love to crow to the electorate about how they pour money into health. They don’t do this with things like superannuation because they can’t make a plausible argument that any other party would do differently.

It’s also much less political to legislate baked-in super increases. The increase in each Super payment is calculated via a fairly uncontentious formula, that’s then multiplied by the number of claimants. Any demographics-based funding health formula could become mired in politically contentious debates over weighting given to the cost of healthcare to women, the elderly, Ma¯ ori and Pacific people. We’re already seeing this debate emerge around the DHB formula, which some say disadvantages diverse urban populations.

But the main reason governments might hesitate to ask about the true annual increase to the cost of healthcare is they fear the answer. The costliest part of the health system is delivering care to the elderly. This means incredible financial strain is likely to be placed on the system in coming years, which adds to the already considerable cost of the ageing population.

At the end of last year, Treasury forecast the number collecting superannuation over the next four years would grow by 140,000 to 900,000, increasing the annual cost to $20 billion from $15b. Such a massive increase in cost isn’t accompanied by a commensurate increase in revenue. In fact, as the population ages, revenue will shrink, making Super proportionally more unaffordable. Covid-19 will make things even more difficult, as lower migration will stack demography even more in favour of the elderly.

Automatically lifting health funding in the way we do for superannuation will simply add to the unavoidability of an already unaffordable system. Increasing superannuation costs by a third in three years is expensive – increasing the health budget along the same lines just compounds the problem.

It’s no bad thing to continue increasing the health budget – it’s clear New Zealanders value and enjoy a well-funded health system. Cost savings should always be sought, but in an expensive portfolio like health, there’s only so much fat you can trim before you hit the bone.

Governments have one more tool at their disposal to keep health affordable and that’s revenue, but with both Labour and National getting into retail politics mode ahead of the election, just how much revenue is needed to pay for the cost of everything from the Covid-19 economic recovery to the day-to-day running of a hospital is a question neither major party wants to ask. They know all too well the electorate won’t like the answer.

The main reason governments might hesitate to ask about the true annual increase to the cost of healthcare is they fear the answer.