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At least $564m more needed for Health to just stand still

CTU Media Release

16 May 2011

At least $564m more needed for Health to just stand still

A pre-Budget analysis of health expenditure released today estimates that the Health vote will need to be increased by at least $564 million just to keep pace with population growth, ageing, new treatments, new technology, and increases in general costs, pharmaceuticals, and salaries. Of that, District Health Boards (DHBs) need an additional $461 million.

The analysis, undertaken by the New Zealand Council of Trade Unions, shows the $564 million estimate is almost three quarters (70 percent) of the $0.8 billion of “new spending” which the government has said it will allocate in the 2011 Budget, mainly to health and education. However it will be paid for by cuts in expenditure elsewhere, so is not in fact additional spending.

“This leaves no room for funding improvements in health, let alone maintaining the spending power of the education budget or other public services,” said CTU economist Bill Rosenberg. “It seems most unlikely that Health will get what it needs.”

“For example, we understand that DHBs have been told they will receive $350 million in additional funding again this year. However, like last year, that is $111 million less than what is needed to stand still.”

“Even the $564 million is only what is needed to stand still,” said Rosenberg. “If we want improvements in the health system or to address existing problems such as persistent deficits in district health boards and loss of services, further increases in funding are required over and above this. And we have not included any additional cost for employer Kiwisaver contributions which we understand may be transferred to the Health Sector from the State Services Commission. A rough estimate is that it could cost the Health Sector $20-25 million a year.”

“The CTU and its affiliated health sector unions have made this estimate so that we and the public can judge whether the Health vote announced in the Budget on 19 May provides for improved health services, or is really a cut in those services, or a standstill,” said Rosenberg.

The CTU carried out a similar analysis for the 2010 Budget. Its estimate of the increase needed to keep up with costs and inflation was within 1 percent of that provided by the Ministry of Health. The CTU estimated that $512 million was required, compared to the Ministry’s estimate of $507 million. That was not enough to provide for new treatments.


How much funding is needed to avoid the condition of the Health System worsening 2011 (PDF)


Notes to Editors
A brief Q&A follows and a working paper and spreadsheet providing details of the analysis is available on the CTU web site

At least $564m more needed for Health to just stand still: Q & A

How much was allocated to Health last year and how much will be needed to maintain the current level of funding?

In the 2010 Health vote, $13,063 million was allocated for operational expenses, plus $511 million for capital expenditure, a total of $13,574 million. Operational expenses will need to rise by 4.3 percent or $564 million (from $13,063 million to $13,626 million) to maintain the current levels of services including an allowance to meet demand for new treatments, offset by a 0.3 percent increase in productivity. Of the $564 million, $520 million is simply to keep up with population and cost increases (though it does not allow the majority of health sector staff pay rates to keep up with inflation, nor for significant recognition of improved performance, skills or experience of existing staff).

Estimating capital needs is more difficult as the drivers for it are less direct. Capital goods prices are close to static at present so cost pressures alone would leave the $511 million capital funded in the 2010 Budget at the same level. With that, the total Health vote would rise from $13,574 million in 2010/11 to $14,137 million to 2011/12.

How much of the Health vote goes to district health boards and how much goes to other services?

The biggest portion of the Health vote is to fund District Health Boards (DHBs). In the 2010 Budget, $10,042 million went to DHBs and $2,773 million to fund other health programmes such as provision of clinical training, infection control and immunisation programmes, public health and other national health services. It is estimated that DHB funding will need to rise by 4.6 percent, or $461 million, and funding for the other health programmes by 3.6 percent, or $97 million, to maintain service levels.

For the DHBs to catch up with their 2009 Budget allocation, they would need $921 million, of which they received only $343 million in the 2010 Budget, so would need $578 million in this year’s Budget.

What about administration costs and any other spending?

The operation of the Ministry of Health, and “other” expenses such as New Zealand’s membership of the World Health Organisation and legal expenses require an estimated further $5 million, taking them to $253 million.

What were the NZCTU’s estimates based on?

The estimates are based on a population increase, including an allowance for the ageing population, of 1.7 percent, wage and salary increases (based on most recent settlements) of 4 percent for senior medical staff and 2 percent for other staff, and other cost increases at the forecast level of inflation of 2.6 percent. A 0.8 percent allowance is made for new treatments. The working paper shows how the estimates would change with a variation in any of these values.

Has allowance been made for productivity improvements?

Yes, offsetting these increases in costs we use Treasury’s assumption of a 0.3 percent productivity increase which reduces costs in all areas except international health organisations. Productivity is notoriously difficult to measure in the health sector. We have included the Treasury estimates of productivity in our figures for the purposes of consistency but it is possible that they may either under estimate or overestimate real productivity. The CTU health sector unions have made substantial commitments to improving services in the health sector. They are involved in a number of projects under the auspices of the Health Sector Relationship Agreement (between unions, DHBs and government) which tap into the expertise and experience of the unions’ health care members in order to improve the delivery and quality of health care. Their expectation is that productivity will improve, although its results may often be measured in better patient health outcomes rather than immediate cost savings. However better patient health outcomes do result in future cost savings by reducing demand which is in fact the only way to keep costs down in the long run.

What about the restructuring of Health as a result of the Horn Report?

We assume that the restructuring will not affect expenditure in the 2011/12 financial year, but that any savings will be available to the health system. We are not aware of any significant savings to date and if there have been any, how much they have saved.

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