Ageing is not the cost burden we think it is
Most older people are cared for cheaply in the community,
THE population is ageing. People born in the Baby Boom after 1945 are now hitting retirement and, it is widely assumed, are starting to overcrowd hospitals and make our health system financially crippling to government budgets.
For every complex problem, said H.L. Mencken, there is an answer that is clear, simple and wrong. So it is with ageing and hospital costs.
The assertion that an ageing population is making our hospital system unaffordable has been so often heard that it is now, by default, been almost universally accepted as the truth. But there are two problems with this. First, it leads to the assumption that a decent public hospital system is unsustainable in the long term which provides convenient cover for budgetcutting politicians.
The second problem is that it is wrong.
Dozens of studies by health economists in Australia and around the world have shown that when all the evidence is taken into account, the costs of acute hospital care associated with ageing are comparatively benign, rising much slower than the annual growth in the economy.
In other words, we will still be able to afford a decent health system.
The confusion arises from the assumption that people who turn 65 will immediately start going into hospital, and will go more frequently as they get older. But that’s not how it happens.
In fact, the health of most over-65s is managed relatively cheaply in the community, by GPs, nursing homes and others, usually without a hospital becoming involved. People are not only living longer but remaining relatively healthy for longer.
Spending on the elderly is a relatively low proportion of the national bill for health care — and it’s not until the end of life that costs soar.
Perhaps as much as 40 per cent of lifetime health costs accrue during someone’s last two or three years. Simple projections that fail to take this into account get an answer that is both wrong and unduly alarming.
In Australia, much of the research in this area has come from a team of health economists at Monash University led by Professor Jeff Richardson.
“Age cannot be regarded as a significant determinant of national health expenditures,” they found.
And again: “Ageing will only have a limited effect on healthcare costs, and there is no evidence that population ageing will cause chaos for our health system,” said yet another study, published in the Medical Journal of Australia.
Rising health costs are being driven less by ageing than by the costs of new drugs and technology, and by increasing demand across all age groups. Nevertheless, the costs that occur within the last couple of years of life add to the mix — and, in Australia, nowhere is this more true than in Tasmania.
Because we have an older population, we also have more deaths as a proportion of that population.
This state has 2.1 per cent of the nation’s people but 3 per cent of its deaths. That works out to about 1000 “extra” deaths every year, costing over $30,000 each, or more than $30 million overall.
But that’s easily contained within a state health budget of $1.6 billion. And we are amply compensated through the GST system, which this year will give Tasmania an extra $260 million in recognition of our special health needs.
The problem is that the State Government is not spending that money on health. It has, apparently, more pressing priorities.
But that’s another story.
Martyn Goddard is a public policy analyst based in Hobart.