Health Issues, No 62, March 2000, p.27-30.
Keywords: Health;
We may be approaching a time in which we can have an honest discussion on how to fund the health system. The public discussion has been rarely so in the last decade, because too often there is a hidden ideological agenda advocating private funding – of privatisation.
Even today’s public policy could lead to a surreptitious privatisation of public health care. The process is detailed in my recently published book The Whimpering of the State, but I sketch it here. The centralised Health Funding Authority is handing personal health funding over to agencies such as independent practitioners association. One could see how, in the long run, everyone belong to such a primary care agency, who would purchase all personal health care for their patients, including secondary and tertiary care in hospitals. There are a number of reasons why this arrangement will not work, but for the last decade considerations of practicality and efficiency have not loomed large in the government’s thinking about health care provision. Suppose we get to the stage where all our public post-primary health care funding is channelled through primary care organizations. A feature of these organizations is that they also charge their patients. All the government has to do is to squeeze the amount of public funding that goes to the primary care organization, which will respond by increasing private charges to the patients. Thus the balance between private and public funding can be steadily switched away from public responsibility. Ultimately there would be no guaranteed core of public funding for personal health care – instead everyone could end up paying private medical insurance arranged by one’s general practitioner.
I go through this scenario, not only to warn of the looming threat of further privatisation of public health care on the funding side (and there are also pressures to reduce the significance of public provision), but because I want to discuss how those committed to a substantially publicly funded (and publicly provided) health care system, for equity and efficiency reasons, increasingly face challenges about the role of private funding.
Historically, effective health care was characterised by a limited number of procedures which typically prevented death or substantial reductions in health care. In the last fifty years the number of potential procedures has increased dramatically, many of them may – or may not – be effective or applied in situations where there efficacy is not known. But even more significantly, effective ones – especially expensive effective procedures – may improve the quality of life, but by small rather than large amounts. This shift from medicine’s past role of increasing the quantity of life to also improving the quality life has crept up upon us, and we are still struggling with its implications.
Now we have always accepted that some health care should be funded privately. I doubt anyone would argue that the supply of aspirins to soothe a headache – say as the result of excessive imbibing the night before – should be paid by the state. On the other hand, all but the most extremist ideologues are likely to argue that some personal treatment – say brain surgery – is probably going to have to be publicly funded. At issue is what is to be done between the extremes: are most of the (effective) treatments to be funded by the state, or should an increasing proportion be funded by patient or by private medical insurance?
What has been happening in recent years is the government has been shifting the balance. In 1980 some 88.0 percent of the nation’s spending on health care was provided by the government. Today, the ratio is down to 77.4 percent. Spending on private health care has been increasing annually 4.5 percent faster than public spending.
How much, then, should the government spend on health care? There is no scientific answer to such a question, for it depends upon what sort of society one wants. But given the sort of society that most New Zealanders want, the answer has to be “more”.
There are various indicators which suggest that more spending on health is needed. Almost every day there is some article in the local newspaper, the import of which is that some key area or other is insufficiently funded. Other stories are not told. Earlier this year I was working for the Multiple Sclerosis Society evaluating a new drug which can spectacularly improve the quality of life of some multiple sclerosis sufferers. However there is not enough funds for Pharmac to subsidize the drug. More generally, there is no interest at government level of identifying the size of the deficit in spending on health care. That would be too costly. But if we dont know, if we dont think about the issue systematically, we will continue to make arbitrary decisions.
Another way of assessing the adequacy of the provision for public health care is to look at the international evidence. The following table shows the OECD countries which spend more per capita on health care than New Zealand. (The amounts in brackets are their per capita spending as a percentage of New Zealand per capita spending in the same prices [1]). Thus we are 18th in the OECD. more importantly for our purposes, with the exception of the United States, none of these countries are noticeably inefficient in their health care spending. New Zealand could spend considerably more on health care and get useful returns on its spending.
TOTAL HEALTH CARE SPENDING
Per Capita, 1997 : NZ = 100 (Same prices)
| United States | 198 |
| Japan | 186 |
| Luxembourg | 177 |
| France | 173 |
| Switzerland | 156 |
| Germany | 155 |
| Belgium | 148 |
| Canada | 136 |
| Netherlands | 136 |
| Norway | 136 |
| Austria | 135 |
| Iceland | 132 |
| Sweden | 124 |
| Denmark | 121 |
| Italy | 118 |
| Australia | 116 |
| United Kingdom | 113 |
| Average of Above | 144 |
| New Zealand | 100 |
These figures include both public and private spending on health. Here are the figures for just public spending:
PUBLIC HEALTH CARE SPENDING
Per Capita 1997: NZ = 100 (Same prices)
| Luxembourg | 210 |
| Japan | 186 |
| Belgium | 167 |
| France | 167 |
| Germany | 155 |
| Norway | 144 |
| Iceland | 142 |
| Switzerland | 141 |
| Sweden | 134 |
| Austria | 126 |
| Netherlands | 126 |
| United Kingdom | 123 |
| Canada | 120 |
| United States | 120 |
| Italy | 106 |
| Australia | 103 |
| Denmark | 101 |
| Average of Above | 138 |
| New Zealand | 100 |
Again New Zealand is 18th, and again we can conclude that New Zealand could spend considerably more on public health care for useful returns. For instance, were New Zealand to spend up to the average of the 17, that would be a 38 percent increase, that would represent around another $2.4 billion a year of public monies.
Can we afford this sort of spending? Let us acknowledge that those who gave us the disaster of the health reforms also messed up the growth of the New Zealand economy, and New Zealand is poorer than any of the other 17 countries. Here is there spending on public health care as a proportion of GDP:
PUBLIC HEALTH CARE SPENDING
(1997) % of GDP
| Germany | 8.1 |
| France | 7.4 |
| Sweden | 7.1 |
| Switzerland | 6.9 |
| Belgium | 6.7 |
| Iceland | 6.7 |
| Luxembourg | 6.5 |
| United States | 6.5 |
| Canada | 6.4 |
| Netherlands | 6.1 |
| Norway | 6.1 |
| Australia | 5.7 |
| Austria | 5.7 |
| Japan | 5.7 |
| United Kingdom | 5.7 |
| Italy | 5.3 |
| Denmark | 5.0 |
| Average of Above | 6.3 |
| New Zealand | 5.8 |
Now New Zealand is no longer bottom, although before we get too proud, note some other of the poorer OECD countries are also above us. On the other hand, observe that the government of the US which has the most privatised of health care among the rich countries, spends more as a proportion of GDP than does New Zealand. Even this is misleading, for there is an implicit system of public taxation and expenditure, insofar as firms are forced to provide their workers with health care – in effect it is a tax on production. Those who support the privatisation of the health system might like to reflect on the US one not only being expensive, inefficient, and inequitable, but the much burden not carried by the poor and the sick is carried by business.
What is significant about this table is that New Zealand is below the average of 6.3 percent of GDP spent on public health care. If it were to spend at this average, we would spend another $400 million a year. That would make a not insubstantial reduction to some of those newspaper headlines reporting funding shortages.
The point about this $400m of additional public expenditure on health care a year, is that it simply takes us up to the average GDP ratio of the 17 countries. It does not take us up to their average expenditure per patient which, you recall, would be about a 38 percent increase (rather than this 8.6 percent increase proposed here). By international standards, New Zealand health spending could be increased substantially. An extra $400m a year is but a minimal increase. Because we have a backlog of health problems from insufficient expenditure in the past, not all of which has been resolved by private funding or early death, there is a need for a temporary boost in funding above this $400m. The figure is conservative.
Can we afford the extra $400m a year? The short answer is the majority of these OECD countries can, but to do so requires us, as it has them, to pay more tax. That is the trade off. If we are committed to a public health system then we have to be prepared to pay for it. Those who promise us lower taxes, are in fact promising less publicly provided health and other services.
There are some other potential resource gains. First we seem to have an exceptionally inefficient organization of the public health system, with its multiple layers – such as the expensive Health Funding Authority – and the requirement of commercial discipline by the Hospital and Health Services.[2] There are gains to be made by developing a cheaper more effective system of public organization, although any reorganization needs to minimize the impact on those at the clinical service delivery.
Second, we must continue to press clinicians to provide effective health care – care where there is significant health gains for the resources used. The resources released from ineffective treatment can be then transferred to where they can be effective. That gives the nation a health gain. This is a worldwide problem, of course, but it needs to be addressed in New Zealand too.
But no matter how many resources we pour into the health system, there will remain an unrequited demand for care which gives some increase in the quality of life, but insufficient to justify public funding. If some of that is funded privately, then so be it – people are entitled to spend their disposable income on what they wish, including ineffective or only marginally effective health care. Thus even in a society in which there is a strong commitment to public health care, there is a place for private health care. This private margin is going to be an increasingly pressing policy concern. It will be good to address it in a context of a government with a commitment to a commitment to a vigorous public health system, rather than in an environment where any discussion on the private margin becomes an excuse for privatisation.
In summary there is considerable evidence that the New Zealand health system is not providing all the effective means of health care currently available. That evidence is based on
– anecdotes;
– reports on specific health areas;
– international comparisons.
If New Zealand were to spend as much as the average of the top 17 OECD countries, total health spending would be 44 percent greater, and public health spending would be 38 percent greater.
Even if we accept that New Zealand’s lower standard of living constrained its ability to fund at these rates, there is a strong case for increasing funding by a further $400 million a year to take it up to the average of these 17 OECD countries in terms of public expenditure as a proportion of GDP.
There is also a need to improve the efficiency of the current health spending by
– a simpler less expensive organization;
– eliminating ineffective health care procedures.
In the longer run we must recognize that health care is increasingly about quality of life, with the possibility of unlimited resources demanded to do this. We will have to address the existence of private funding in a community strongly committed to a public health service.
Notes
(1) These are from Health Expenditure Trends in New Zealand 1980-1998 (Ministry of Health 1999), adjusted for relative health sector prices using the data reported in Purchasing Power Parities and Real Expenditures (OECD 1992). This is favourable to New Zealand, compared to the officially provided data.
(2) I doubt that any other country levies on its health care as comprehensive an indirect tax as GST, which inflates the New Zealand spending level relative to the rest.