Paying the healthcare ‘reaper’

According to analysts at KPMG in their August 2010 issue of Issues Monitor on Healthcare the cost of providing healthcare in Australia is expected to rise 7X by 2050, from $2300 to $7200 per head of population. Current expenditure on healthcare is around 8% of Gross Domestic Product. This percentage has been steady since the 1990’s.(aihw 2000)

So, if the cost is to increase by 7X and the percentage of GDP spent on healthcare is to remain similar to current expenditure, then the level of GDP, or productivity in Australia needs to increase – just to cover the increasing cost of healthcare. We havent even considered education, defence, the community sector or any other Government funded service.

Additional revenue depends upon either higher taxes or higher productivity or a bit of both. Healthcare systems need to allocate increasingly scarce funds. An ageing population increases the level of chronic diseases, neurological diseases, respiratory issues and requires investment in solutions to mobility issues as well as the rising cost of pharmaceuticals.

In short, Australia needs to produce more, sell more, get higher prices and increase the amount of tax gathered from productivity because the taxpayer base is shrinking due to ageing. There is real risk the rising cost of healthcare will outstrip increases in productivity.

In general, increases in GDP are generated by the private sector. This results in higher GDP through corporate taxes, personal tax and Goods and Services taxation.

The aged and the elderly have no choice. We all get older and our bodies will break down with time. Those with problems created by genetics, such as cancer have few options, they must be provided with medical attention. This means those that engage in activities that cause harm, alcohol, drugs, unwanted pregnancies, sports, obesity, motor accidents, smoking etc should expect to either wait for money to be available or find the means to pay for their cures.

Governments have to invest in healthcare. Even in the United States, that bastion of user-pays, Government in the USA spend around 16% of GDP on healthcare. (OECD 2007) An investment in healthcare is an investment in the future of a country, but only when that investment is directed at keeping people well, and out of the healthcare system.

Maybe, just maybe if we can reduce the number of hospital admissions to the level of available staffing then we will minimise the impact of predicted labour shortages in healthcare.

Those are my thoughts for the day
John Coxon


About John Coxon

Principal consultant for John Coxon & Associates, a management consultancy working with boards and management teams in healthcare, aged care and not for profit organisations to develop effective strategic planning processes and social enterprise business plans
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