Medical costs to rise, and not just for the aged

IMPROVEMENTS in technology are unlikely to curtail Australia's burgeoning healthcare costs, which are projected to rise across every age group and expose the Commonwealth to "fiscal risk", a Treasury official says.

IMPROVEMENTS in technology are unlikely to curtail Australia's burgeoning healthcare costs, which are projected to rise across every age group and expose the Commonwealth to "fiscal risk", a Treasury official says.

"The important thing about health projections is that it's not just about the ageing effect it's also about the increase in real per capita costs of health expenditure with technological change," Phil Gallagher, manager of the retirement and intergenerational modelling unit of the tax analysis division, said yesterday.

"Health is actually a very productive industry. Every time a new technology comes around that lowers costs, demand goes up, swamping any decline in outlays. Examples are diagnostic imaging, pathology testing, nuclear medicine you can think of any technology. Once they get cheaper, they become far more widespread.

"Demand and technological pressures are projected to lift health spending across every age group. This is not just about the aged ... we're saying that for every age group, because health is a superior good, health costs will increase."

Speaking at a conference of economists in Melbourne, Mr Gallagher drew attention to the skyrocketing costs of the federal pharmaceutical benefits scheme since the 1990s, particularly for people aged 65 and above.

"So overall ... we've got ageing population effects ... but we think the demand for health services will expose the Commonwealth to fiscal risk," he said in a speech on the implications for population ageing on Australian fiscal policy.

Citing the latest international report, released in 2010, Mr Gallagher said as a proportion of GDP, spending on health is projected to rise from 4 per cent in 2009/10 to 7.1 per cent in the 40 years to 2049/2050.

Age-related pensions and aged care are projected to rise from 2.7 per cent and 0.8 per cent of GDP, to 3.9 per cent and 1.8 per cent respectively in 2049/50.

The report warned spending on health, age-related pensions and healthcare could almost double to about 50 per cent over the decades to 2050 "without action to curtail spending growth".

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