Healthcare rationing by stealth?

Why the failure of Governments to fund private health insurance subsidies will ultimately mean healthcare rationing…

Whenever Treasury considers the long-term fiscal outlook for New Zealand, our high reliance on publicly funded healthcare gets questioned. Why? Because it represents roughly one fifth of core Crown expenditure and approximately 83% of the total healthcare spend is Government funded.

Unsurprisingly, this reliance is set to grow. The Treasury’s recently released long-term projections reported that the total health spend is forecast to increase from 6.9 % of GDP in 2011 to 11.1% of GDP in 2060.

The Affordable Healthcare Bill promoted by New Zealand First is advocating for a 25% health insurance rebate for people aged over 65 and the removal of fringe benefit tax (FBT) from health insurance contributions made by employers. It is hoped that these subsidies will encourage more people to take up private health insurance and divert scarce resources in the public health system away from elective procedures that could be delivered in the private sector.

The idea of introducing tax incentives to encourage private medical insurance has had limited airing in the public domain. But as the number of people cancelling or downsizing their health insurance policy is higher than ever, surely any wise Finance Minister would be seriously considering this as a tool to minimise net expenditure on health.

The latest statistics from the Health Funds Association of New Zealand show for the 12 months ending 31 December 2012, the number of lives covered by health insurance fell once again, by 0.8%. Over the past three years this figure has dropped by 3.2%, a decline of 45,000 lives covered.

The social risks of not stemming this tide are significant and the likely outcome will be healthcare rationing. New Zealand has tried this in various forms before and some of these controls already operate.

Rationing could mean extending the use of patient co-payments, which already exist when New Zealanders visit a GP or get a prescription filled. Health economists forecast that these measures help to manage over-consumption. But would the New Zealand public be ready for an extension of this existing arrangement?

Rationing might also include extending existing controls on funding and coverage of health services by limiting what benefits are provided and to whom. This may entail longer waiting lists for elective services and restrictions on access for people who don’t meet a certain criteria. The risk here is that restricting access in one area can increase needs in other more costly areas of care.

Fixed budget constraints around spending could be set by the Government on each aspect of healthcare as a way to increase rationing. Or the funding of certain procedures may be refused if there is insufficient evidence that certain new technology will improve health outcomes.

The alternative, put forward by New Zealand First, needs to be seriously considered by the Government. Bolstering investment in private health insurance via subsidies for elderly people and FBT relief for employers in relation to contributions to private health insurance schemes could turn things around. 

The Treasury report referred to above indicates that if the level of private financing of health services increased from 17% to 25%, this would result in a saving for the Crown equal to 1% of GDP (about $2 billion in today’s terms).

Even a shared care model with partial consumer payment and partial private insurance coverage would be an improvement on the current outlook. 

Economic forecasters are predicting that income growth and technology enhancements will have the greatest impact on our expectations for access to more advanced health services. Something needs to change, and soon, as an ageing population is unlikely to be satisfied with this outcome.

Further enquiries, please contact:

Pam Newlove            
Grant Thornton New Zealand Partner and Co-Chair
T +64 (0)9 308 2570