Health expenditure Australia
2005–06
 
The Australian Institute of Health and Welfare is Australia’s national health and welfare statistics and
information agency. The Institute’s mission is
better information and statistics for better health and
wellbeing
.
Please note that as with all statistical reports there is the potential for minor revisions of data in this
report over its life. Please refer to the online version at <www.aihw.gov.au>.
 
HEALTH AND WELFARE EXPENDITURE SERIES
Number 30
Health expenditure Australia
2005–06
October 2007
Australian Institute of Health and Welfare
Canberra
AIHW cat. no. HWE 37
 
© Australian Institute of Health and Welfare 2007
This work is copyright. Apart from any use as permitted under the
Copyright Act 1968
, no part may be
reproduced without prior written permission from the Australian Institute of Health and Welfare.
Requests and enquiries concerning reproduction and rights should be directed to the Head,
Business Promotion and Media Unit, Australian Institute of Health and Welfare, GPO Box 570,
Canberra ACT 2601.
This publication is part of the Australian Institute of Health and Welfare’s Health and Welfare
Expenditure Series. A complete list of the Institute’s publications is available from the Institute’s
website <www.aihw.gov.au>.
ISSN 1323-5850
ISBN 978 1 74024 727 6
Suggested citation
Australian Institute of Health and Welfare 2007. Health expenditure Australia 2005–06. Health and
Welfare Expenditure Series no. 30. Cat. no. HWE 37. Canberra: AIHW.
Australian Institute of Health and Welfare
Board Chair
Hon. Peter Collins, AM, QC
Director
Penny Allbon
Any enquiries about or comments on this publication should be directed to:
John Goss
Australian Institute of Health and Welfare
GPO Box 570
Canberra ACT 2601
Phone: (02) 6244 1151
Email: expenditure@aihw.gov.au
Published by the Australian Institute of Health and Welfare
Printed by
 
Contents
Preface................................................................................................................................................... ix
Acknowledgments................................................................................................................................x
Abbreviations and symbols.............................................................................................................. xi
Executive summary ..........................................................................................................................xiii
Health expenditure in Australia ................................................................................................ xiv
Funding ................................................................................................................................ xiv
Areas of health expenditure .............................................................................................. xvi
What is health expenditure? .............................................................................................. xvi
1
Background ....................................................................................................................................1
High-level residential aged care ...........................................................................................2
1.1
The structure of the health sector and its flow of funds ....................................................2
1.2
Revisions to ABS estimates ....................................................................................................5
1.3
Changes to AIHW estimates .................................................................................................5
High-level residential aged care ...........................................................................................5
Public hospitals and public hospital services .....................................................................5
Private hospitals ......................................................................................................................6
Individual out-of-pocket expenditure for dental services, other health practitioner
services, aids and appliances, all other medications and patient transport services ....6
State and territory funding of health expenditure .............................................................7
Premium rebates claimed through the taxation system ....................................................7
2
Total health expenditure..............................................................................................................8
2.1
Health expenditure and the general level of economic activity.......................................9
Health inflation......................................................................................................................12
2.2
Health expenditure per person ...........................................................................................13
2.3
Health expenditure in states and territories......................................................................14
2.4
Sources of growth in real health expenditure ...................................................................18
2.5
Sources of nominal growth in health expenditure ...........................................................18
3
Funding of health expenditure in Australia ..........................................................................20
3.1
Broad trends...........................................................................................................................20
Total recurrent funding........................................................................................................23
3.2
Government sources of funds .............................................................................................32
Australian Government .......................................................................................................32
State and territory governments and local government authorities..............................34
3.3
Non-government funding....................................................................................................34
Individuals .............................................................................................................................36
v
 
Private health insurance.......................................................................................................39
Injury compensation insurers..............................................................................................47
4
Health expenditure and funding, by area of health expenditure ......................................49
4.1
Recurrent expenditure on health goods and services ......................................................49
Institutional health services .................................................................................................50
Non-institutional health goods and services ....................................................................63
4.2
Capital expenditure ..............................................................................................................74
4.3
Capital consumption by governments...............................................................................76
4.4
Medical expenses tax rebate................................................................................................77
5
International comparisons .........................................................................................................78
5.1
Health expenditure in OECD countries .............................................................................78
5.2
International comparisons ...................................................................................................79
5.3
Health expenditure in the Asia–Pacific region .................................................................84
5.4
Australian System of Health Accounts ..............................................................................85
6
Classification of residential aged care expenditure..............................................................90
6.1
Background ............................................................................................................................90
6.2
History....................................................................................................................................91
6.3
Residential aged care expenditures: estimating the distribution of expenditure
across different service needs..............................................................................................94
Implications of reclassification ............................................................................................95
7
Technical notes ............................................................................................................................97
7.1
General....................................................................................................................................97
Health Expenditure Advisory Committee (HEAC) .........................................................97
7.2
Definition of health expenditure.........................................................................................98
7.3
Data and methods used to produce estimates ................................................................102
General..................................................................................................................................102
State and territory expenditure tables..............................................................................102
State government contracting of private hospital services ...........................................103
Allocation of expenditure by the Australian Government to states and territories..103
Expenditure by state, territory and local governments .................................................103
Funding by the non-government sector ..........................................................................105
Health insurance funds ......................................................................................................105
Private health insurance rebates .......................................................................................105
Individuals ...........................................................................................................................105
Other non-government sources ........................................................................................106
Change in methodology for deflators ..............................................................................106
Blank cells in expenditure tables.......................................................................................107
Population ............................................................................................................................108
vi
 
7.4
Revisions of definitions and estimates.............................................................................108
Definitions ............................................................................................................................108
Revision of estimates ..........................................................................................................109
Appendix tables ................................................................................................................................114
Appendix A: National health expenditure matrices, 2003–04 to 2005–06...............................115
Notes to Appendix A tables ..............................................................................................125
Appendix B: State and territory health expenditure matrices, 2003–04 to 2005–06..............126
Notes to Appendix B tables ...............................................................................................152
Appendix C: Detailed disaggregation of selected areas of health expenditure, 2004–05 ...153
Notes to Appendix C tables...............................................................................................156
Appendix D: Price indexes and deflation ....................................................................................157
Price indexes ........................................................................................................................157
Deflation and constant price expenditure aggregates ...................................................157
Change in methodology.....................................................................................................158
Appendix E: Capital in the Australian health sector .................................................................161
Appendix F: Cross-border flows....................................................................................................162
Appendix G: Mean resident population ......................................................................................163
Glossary..............................................................................................................................................165
References ..........................................................................................................................................171
List of tables ......................................................................................................................................174
List of figures ....................................................................................................................................179
List of boxes.......................................................................................................................................180
vii
 
viii
 
Preface
In the financial year 2005–06, Australia‘s health expenditure totalled $86.9 billion,
representing 9.0% of gross domestic product (GDP). This compares with 9.05% of GDP in
2004–05 and 7.5% of GDP in 1995–96. Given the continual calls for more resources across the
different components of the health system, it is essential to understand what is currently
spent if there is to be informed discussion about where the money should be best spent.
Regular reporting of national health expenditure statistics is also vital to understanding the
characteristics of Australia’s health system. These statistics show the volume and proportion
of economic resources allocated through the health care system to foster the health and
wellbeing of the nation.
Health expenditure Australia 2005–06
continues the Australian Institute of Health and
Welfare’s series of reports on national health expenditures, which have been produced
annually since 1986. This publication presents health expenditure data for the period 1995–96
to 2005–06, with detailed matrices at the national level and for each of the states and
territories for the years 2003–04 to 2005–06. This publication and previous publications in the
series are available at the Institute website
http://www.aihw.gov.au/expenditure/health.cfm
Detailed time series data back to 1960-61 is available in online datacubes at
http://www.aihw.gov.au/expenditure/datacubes/index.cfm
There have been some revisions to previously published estimates of health expenditure, due to
receipt of additional or revised data or changes in methodology. Comparisons over time should,
therefore, be based on information provided in this publication and on-line data, rather than by
reference to earlier editions. For example, data in this report are not comparable with the data
published in the previous issues because expenditure on high-level residential aged care which,
in earlier reports was classified to health, is now classified to welfare services.
Penny Allbon
Director
Australian Institute of Health and Welfare
ix
 
Acknowledgments
This report would not have been possible without the valued cooperation and effort of the
data providers in the health authorities of the states and territories and the Australian
Government. The Australian Institute of Health and Welfare (AIHW) would like to express
its appreciation for their timely supply of data and their assistance with data validation.
Other data providers have also been very helpful. The AIHW also wishes to thank the
members of the Health Expenditure Advisory Committee who helped plan this report and
provided advice on its content.
The collection and analysis of the data and the writing of this publication was done by
Rebecca Bennetts, Gail Brien, Richard Webb and John Goss with assistance from Jenny
Hargreaves, Eric Puno, John Shelton Agar, Daniel Aherne and Maneerat Pinyopusarerk.
x
 
Abbreviations and symbols
ABS    Australian Bureau of Statistics
ACCMIS  Aged and Community Care Management Information System
ACFI    Aged Care Funding Instrument
AHCA   Australian Health Care Agreements
AIHW    Australian Institute of Health and Welfare
CPI    Consumer price index
DoFA    Department of Finance and Administration
DoHA    Australian Government Department of Health and Ageing
DVA    Australian Government Department of Veterans’ Affairs
GDP    Gross domestic product
GFCE    Government Final Consumption Expenditure
GFS    Government finance statistics
GHE    Government health expenditure
GPC    Government Purpose Classification
HACC   Home and Community Care
HASAC  Hospitals and Allied Services Advisory Committee
HEAC    Health Expenditure Advisory Committee
HFCE    Household final consumption expenditure
ICHA   International Classification for Health Accounts
IPD    Implicit price deflator
MBS    Medicare Benefits Schedule
NHA    National Health Accounts
NMDS   National minimum data set
OECD    Organisation for Economic Co-operation and Development
PBS    Pharmaceutical Benefits Scheme
PET    Positron emission tomography
PHE    Public hospital establishments
PHIAC
Private Health Insurance Administration Council
PHIIS    Private Health Insurance Incentives Scheme
PHOFA  Public Health Outcome Funding Agreements
PPP    Purchasing power parity
RCS    Resident Classification Scale
ROGS    Report on Government Services
xi
 
RPBS    Repatriation Pharmaceutical Benefits Scheme
SHA    System of Health Accounts
SPPs    Specific purpose payments for health under Section 96 of the Australian
Constitution
WHO   World Health Organization
n.a.   not available
. .    not applicable
n.e.c.    not elsewhere classified
—    nil or rounded down to zero
xii
 
Executive summary
•
The provision of health services is an important part of the Australian economy.
Expenditure on health services reached $87 billion in 2005–06 which was 9.0% of
Gross Domestic Product (GDP) (Table 2).
•
Health expenditure grew more slowly in 2005–06 than the growth in GDP so the health
to GDP ratio was down slightly from the 9.05% of GDP in 2004–05. But over the decade
health expenditure grew much more strongly than GDP, so there has been a substantial
increase in the health to GDP ratio from 7.5% of GDP in 1995–96 (Table 2). Australia’s
health to GDP ratio is comparable with Italy and New Zealand, more than the UK and
considerably less than the level in the USA of 15% of GDP (Table 51).
•
Health expenditure is 2/3 funded by governments and 1/3 by individuals, private
health insurance, and other non-government sources (Table 13). Real expenditure by
individuals on health has grown over the decade at an average 6.0% per year compared
to growth for overall recurrent health expenditure of 4.8% per year (Tables 20 and 25).
The biggest area of individual spending was on medications (34%), followed by dental
services (23%) (Figure 7). Bulk-billing rates increased by 4.2 percentage points from
67.5% in 2003–04 to 71.7% in 2005-06 and this led to lower real growth in out-of-pocket
payments for medical services for the last two years (Tables 41 and 42). But over the
decade, medical out-of-pocket expenditure increased in real terms an average 4.2%
per year.
•
Of the two-thirds of funding for health spending coming from governments, $37 billion
is contributed by the Australian government and $22 billion by state/territory/local
governments (Tables 12 and 13). State funding grew in real terms by 7.6% in 2005-06
compared to a 0.7% growth in Australian Government funding (Table 21). In the decade
as a whole the Australian Government funding grew in real terms on average
4.9% per year and state/territory and local government funding grew by 6.2% per year.
Over the last 10 years, the changes in proportions of funding between the Australian
Government and the state and territory governments have not been driven by major
changes in respective responsibilities.
•
Key changes during the last decade included the Australian Government introduction of
the private health insurance 30% rebate, increases in hospital expenditure primarily
borne by the states and territories and a substantial slowing of pharmaceutical
expenditure growth in the final year.
•
There have been changes in the balance of funding due to the Australian Government’s
decision to provide a rebate on private health insurance. The contribution to health
funding made by private health insurance declined over the decade from 11% of total
funding to 7% in 2005–06, due in large part to the Australian Government private health
insurance rebate scheme taking up some of this funding (Figure 5).
•
The state and territory share of funding of public hospitals has been growing over the
decade (a 5 percentage point increase). The Australian Government share decreased by
4 percentage points. The relative shares in 2005-06 were 51% state/territory and
41% Australian Government, with the remainder being non-government (Table 35).
•
After allowing for inflation, growth in health expenditure over the last decade averaged
5.1% while in 2005-06 growth was 3.1%, the lowest for the decade (Table 1). Within
overall expenditure, the most noticeable slowing was in expenditure on medications,
which increased by just 1.6% (after allowing for inflation) against an annual average
real increase of 8.6% over the last decade (Table 20).
xiii
 
Health expenditure in Australia
•
Total health expenditure in Australia grew by 7.1% between 2004–05 and 2005–06 to
$86.9 billion or $4,226 per person. This represents a $5.8 billion increase from 2004–05,
or $225 more per person than the previous year (Tables 1 and 6).
•
High-level residential aged care expenditure has been reclassified from health expenditure
to welfare services expenditure. As a result, data in this report are not comparable with the
data published in the previous issues. The reclassification of high-level residential aged care
expenditure from health to welfare services expenditure has reduced the health to GDP
ratio in 2004–05 and 2005–06 by 0.6 percentage points (i.e. the health to GDP ratios would
have been 9.7% and 9.6% respectively without the reclassification) (Table 64). The welfare
services expenditure to GDP ratios have been correspondingly increased (AIHW in press).
•
Real growth (adjusted for inflation) in expenditure on health was 3.1% in 2005–06
compared to real growth in 2004–05 of 5.3% and an average annual growth of 5.1%
between 1995–96 and 2005–06 (Table 1).
•
Expenditure for research grew in real terms by 7.0% in 2005–06, public hospital services
grew by 5.6%, community health by 5.2%, aids and appliances by 4.0%, other health
practitioners by 3.7%, private hospitals by 1.3% and medical services by 0.2% (Table A8).
•
Real expenditure on medications increased 1.6% in 2005–06 (Table 20) compared to an
average annual increase in constant prices of 8.6% from 1995–96 to 2005–06.
Funding
•
In 2005–06, the majority of spending in health was funded by governments (67.8%), with
the Australian Government contributing $37 billion (42.9%) and state, territory and local
governments contributing $22 billion (24.9%). The non-government sector (households,
private health insurance and other non-government) funded the remaining $28 billion
(32.2%) (Tables 12 and 13).
•
In real terms, Australian Government funding of health grew by an average of 4.9% a
year from 1995–96 to 2005–06, state and territory government funding grew by 6.2% and
non-government funding by 4.5% a year (Table 21).
•
In 2005–06, the Australian Government’s total funding grew, in real terms, by 0.7%, state,
territory and local governments funding grew by 7.6% and non-government funding
grew by 2.9% (Table 21).
Hospital funding
•
Over the decade to 2005–06, governments increased their share of public and private
hospital funding by 7.8 percentage points (Table 34). The Australian Government share
increased by 3.2 percentage points from 37.4% to 40.6%. The state and territory
government share increased by 4.6 percentage points from 35.9% to 40.5%. The
non-government funding of public and private hospitals decreased from 26.7% in
1995–96 to 18.9% in 2005–06 (Table 34). Of this 7.8 percentage points increase, 5.6
percentage points was the effect of the Australian Government private health insurance
rebate scheme taking over some of the funding of private health insurance.
•
Most funding for public hospitals came from governments in 2005–06—41% from the
Australian Government and 51% from the states and territories (Table 35).
xiv
 
•
Between 1995–96 and 2005–06, the Australian Government share of public hospital
funding decreased by 4 percentage points from 45% to 41%. State and territory
government funding during this period increased by 5 percentage points from
46% to 51% (Table 35).
•
Between 2003–04 and 2005–06, the first three years of the second Australian Health Care
Agreements (AHCAs), the Australian Government share of public hospital funding
through the AHCAs declined 2.8 percentage points from 36.9% to 34.1%. State and
territory government funding during this period increased 2.5 percentage points from
48.1% to 50.6% (Table 36).
Private health insurance and other non-government funding
•
The non-government sector funded 32% ($28 billion) of total health expenditure in
2005–06 (Table 24). Private health insurance funds provided 7% ($6 billion); individual
out-of-pocket payments accounted for 17% ($15 billion); and other non-government
sources (mainly compulsory motor vehicle third-party and workers’ compensation
insurers) accounted for the remaining 8% ($7 billion) (Table 24).
•
Over the decade to 2005–06, non-government sector funding provided by private health
insurance funds decreased 4 percentage points from 11% to 7% of total health
expenditure, funding by individuals increased by 2 percentage points from 15.6% to
17.4% and funding by other non-government sources increased by 1 percentage point
(Table 24).
•
The decrease in funding by private health insurance reflected the 30% rebate for private
health insurance from the Australian Government. Private health insurance benefits that
were previously funded almost entirely by private health insurance premiums were
instead funded 30% by the Australian Government. In 2005–06, 4% of total health
expenditure was funded by the Australian Government’s 30% rebate and 7% was funded
through private health insurance (Table A3).
•
Medical services out-of-pocket expenditure in constant prices decreased by
4.1% ($71 million) between 2003–04 and 2005–06, but over the decade it increased by
$562 million which was an average of 4.2% per year (Table 41). Bulk-billing rates for
medical services were 71.7% in 2005–06, an increase of 0.6 percentage points since
1995–96. The peak was 72.3% in 1999–00 (Table 42).
•
Real growth in expenditure by individuals between 1995–96 and 2005–06 was
6.0% per year, 1.2 percentage points above the real growth in recurrent health
expenditure (4.8%) (Tables 20 and 25).
Types of health services funded by the non-government sector
•
Private health insurance funding of $6 billion in 2005–06 was mainly spent on private
hospitals (49%), dental services (12%), administration (10%) and medical services (10%)
(Figure 8).
•
Private health insurance funds (including Australian Government premium rebates)
were the source of funding for over two-thirds (69%) of private hospital expenditure in
2005–06 (Table A3).
•
In 2005–06, out–of-pocket recurrent expenditure by individuals on health goods and
services was an estimated $15.4 billion: $5 billion (34%) was spent on medications;
$4 billion (23%) on dental services, $2 billion (13%) on aids and appliances and
$1.7 billion (11%) on medical services (Table A3 and Figure 7).
xv
 
Areas of health expenditure
Hospital expenditure
•
In 2005–06, hospitals accounted for over one-third (38.6% or $31.0 billion) of recurrent
health expenditure. Expenditure on public hospital services (which excludes expenditure
on community and public health services, dental and ambulance services and health
research undertaken by public hospitals) was $24.3 billion and expenditure on private
hospitals was $6.7 billion (Table A3).
•
Over the past three years, expenditure on hospitals accounted for the largest proportion
of real growth in recurrent health expenditure (42%)—public hospital services (38%) and
private hospitals (4%) (calculated from Table 20).
•
The private hospital share of hospital expenditure increased from 21.7% of hospital
expenditure in 1995–96 to 22.7% in 2001–02, stabilised for three years and then declined
to 21.5% in 2005–06 (calculated from Table 33).
Pharmaceuticals and other medications expenditure
•
Expenditure on all medications grew in real terms at an average of 8.6% per year from
1995–96 to 2005–06 (Table 20), but in 2005–06 growth was only 1.6%.
•
In real terms, recurrent expenditure on pharmaceuticals for which benefits were paid
grew at an average of 9.1% per year from 1995–96 to 2005–06 (Table 43). In 2005–06 the
growth was 2.7%.
•
In 2005–06, the total amount spent on pharmaceuticals for which benefits were paid was
$7.3 billion—81% of this was benefits paid by the Australian Government for PBS and
RPBS items; 16% was patient contributions and 3% was other pharmaceuticals
(comprising mostly Section 100 drugs) (Figure 16).
•
Expenditure on ‘all other medications’ in 2005–06 was $4.2 billion—70% of which was for
over-the-counter medications (Figure 17).
What is health expenditure?
Health expenditure comprises recurrent and capital expenditure on hospitals, medical,
dental, patient transport services, other health practitioner, community and public health
services, medications, aids and appliances, health research and the administrative systems
that support these services. Health expenditure is mostly funded by the Australian
Government and state and territory governments with some funding also by private health
insurance, households, local government, non-government and other private sector
organisations.
In previous editions of
Health expenditure Australia
the high-level care component of
residential aged care was included with health, but this has been reclassified to welfare
services which now includes all aspects of residential aged care.
xvi
 
1 Background
This publication reports on health expenditure in Australia, by area of expenditure and
source of funds for the period 1995–96 to 2005–06. Expenditure is analysed in terms of who
provides the funding for health care and what types of services attract that funding.
Box 1: Defining health expenditure and health funding
Health expenditure
Health expenditure is reported in terms of who incurs the expenditure, rather than who ultimately
provides the funding for that expenditure. In the case of public hospital care, for example, all
expenditures (that is, expenditure on accommodation, medical and surgical supplies, drugs, salaries
of doctors and nurses, etc.) are incurred by the states and territories, but a considerable proportion of
those expenditures is funded by transfers from the Australian Government.
Health funding
Health funding is reported in terms of who provides the funds that are used to pay for health
expenditure. In the case of public hospitals, for example, the Australian Government funded 41.4%
in 2005–06 and the states and territories funded 50.6%, together providing over 90% of the funding;
these funds are derived ultimately from taxation and other sources of government revenue. Some
other funding comes through private health insurers and from individuals who choose to be treated as
private patients and pay their hospital fees out-of-pocket.
The bulk of funding for health expenditure is provided by the Australian Government and
the state and territory governments. Therefore, as well as consideration of the whole period
from 1995–96 to 2005–06, analyses of trends in expenditure have been linked to the periods
covered by the major health care funding agreements between these two levels of
government. These are:
•
from 1 July 1993 to 30 June 1998
•
from 1 July 1998 to 30 June 2003
•
from 1 July 2003 to 30 June 2008.
Australia is compared with other member countries of the Organisation for Economic
Co-operation and Development (OECD) as well as other countries in the Asia–Pacific region.
The tables and figures in this publication detail expenditure in terms of current and constant
prices. Constant price expenditure adjusts for the effects of inflation using either the annually
re-weighted chain price indexes produced by the Australian Bureau of Statistics (ABS) or
either ABS or the Australian Institute of Health and Welfare (AIHW) implicit price deflators
(IPDs). Because the reference year for both the chain price indexes and the IPDs is 2004–05,
the constant price estimates indicate what expenditure would have been had 2004–05 prices
applied in all years.
1
 
Box 2: Constant price and current price expenditures
Wherever expenditures in ‘constant prices ’are shown, ‘current prices’ have been adjusted to reflect
the prices of the reference year, 2004–05. The aim is to remove the effects of inflation. Hence
expenditures in different years can be compared on an equal dollar-for-dollar basis, as measures of
changes in the volume of health goods and services. The constant price method is used because it is
not possible to derive estimates of volume by directly adding, say, the number of surgical operations
to the number of pharmaceutical prescriptions.
Constant price estimates for expenditure aggregates have been derived using either the annually
re-weighted chain price indexes produced by the ABS or AIHW/ABS IPDs.
The term ‘current prices’ refers to expenditures reported for a particular year, unadjusted for
inflation. So changes in current price expenditures reflect changes in both price and volume.
Throughout this publication there are references to the general rate of inflation. These refer
to changes in economy-wide prices, not just consumer prices. The general rate of inflation is
calculated by the ABS using the IPD for gross domestic product (GDP).
Expenditure estimates for 1998–99 to 2004–05 that have been revised since the publication of
Health expenditure Australia 2004–05
(AIHW 2006a) are detailed in Section 7.5.
High-level residential aged care
The high-level care portion of residential aged care facility expenditure was included in
previous editions of
Health expenditure Australia
. However, all expenditure related to these
facilities has now been reclassified as welfare services expenditure (see Chapter 6 for further
information). Hence, total expenditure data in this report are not comparable with previous
editions of
Health expenditure Australia
. The reclassification of this residential aged care
expenditure has reduced the health expenditure to GDP ratio in 2005–06 by 0.6% percentage
points (i.e. the health to GDP ratio would have been 9.6% without the reclassification)
(Table 64). The welfare services expenditure to GPD ratio would have increased accordingly
(AIHW in press).
1.1  The structure of the health sector and its flow of
funds
The flow of money around the Australian health care system is complex and is determined
by the institutional frameworks in place, both government and non-government. Australia is
a federation, governed by a national government (the Australian or Commonwealth
Government) and eight state and territory governments. Both these levels of government
play important roles in the provision and funding of health care. In some jurisdictions, local
governments also play a role. All of these levels of government collectively are called the
government sector. What remains is the non-government sector, which in the case of funding
for health care comprises individuals, private health insurers and other non-government
funding sources (principally workers’ compensation and compulsory motor vehicle
third-party insurers, but also includes funding for research from non-government sources
and miscellaneous non-patient revenue received by hospitals). Figure 1 shows the major
2
 
flows of funding between the government and non-government sectors and the providers of
health goods and services.
Most non-hospital health care in Australia is delivered by non-government providers,
among them private medical and dental practitioners, other health practitioners (such as
physiotherapists, acupuncturists and podiatrists) and pharmaceutical retailers. Delivery of
health care can occur in a diverse range of settings—hospitals, rehabilitation centres,
community health centres, health clinics, ambulatory care services, the private consulting
rooms of health practitioners, patients’ homes or workplaces, and so on.
In summary, the following are the main features of Australia’s health system (see Figure 1):
•
Universal access to benefits for privately provided medical services under Medicare,
which are funded by the Australian Government, with co-payments by users when the
services are not bulk-billed.
•
Eligibility for public hospital services, free at the point of service, funded jointly by the
states and territories and the Australian Government.
•
Private hospital activity largely funded by private health insurance, which in turn is
subsidised by the Australian Government through the 30% rebates on members’
contributions to private health insurance.
•
The Australian Government, through its Pharmaceutical Benefits Scheme (PBS) and
Repatriation Pharmaceutical Benefits Scheme (RPBS), subsidises a wide range of
pharmaceuticals outside public hospitals, and also funds a wide range of services for
eligible veterans.
•
The Australian Government provides most of the funding for health research.
•
State and territory health authorities are primarily responsible for the operations of the
public hospital networks, mental health programs, the transport of patients, community
health services, and public health services such as health promotion and illness
prevention.
•
Individuals primarily spend money on medications, private hospitals, medical, dental,
other health practitioner services and aids and appliances.
3
 
Contributions
Contributions
Payments
for serv ices
Benefits paid
Benefits paid
Tax rebates
( a)
30% rebate on premiums
 
1.2  Revisions to ABS estimates
Revisions to ABS estimates of GDP and capital expenditure have affected the estimates in
this publication, as in previous issues.
GDP estimates for this publication are sourced from the ABS (ABS 2007a). The current price
GDP estimates in that ABS publication are slightly higher for all years, except for 2003–04
and 2004–05, compared to those published in
Health expenditure Australia 2004–05
(AIHW 2006a).
ABS estimates of capital expenditure have also been revised for most years, since
Health
expenditure Australia 2004–05
(AIHW 2006a).
1.3  Changes to AIHW estimates
In this report there are a number of areas of health expenditure for which there were
substantial changes in the methodology used to calculate estimates of expenditure. The
results of these methodological changes are summarised below and are explained in detail in
Chapters 6 and 7.
The work of the Health Expenditure Advisory Committee (HEAC) (see Chapter 7) will, over
time, further enhance the quality and comparability of health expenditure data reported in
the
Health expenditure Australia
publications.
High-level residential aged care
In previous editions of
Health expenditure Australia
, high-level residential aged care was
classified as part of health expenditure. In this report and for all subsequent reports this
expenditure has been reclassified as welfare expenditure and is reported in the AIHW’s
Welfare expenditure Australia
report series. The reclassification of high-level residential aged
care from health to welfare services expenditure has reduced the health to GDP ratio and the
estimates of Australian Government expenditure on health. The health to GDP ratio is 9.0%
in 2005–06 and would have been 9.6% if high-level residential aged care expenditure was still
reported under health expenditure. See Chapter 6 for further details.
Public hospitals and public hospital services
There is a break in series due to differences in definitions of public hospital and public
hospital services between 2002–03 and 2003–04. Prior to 2003–04, the AIHW Public Hospitals
Establishments collection data were used to derive
public hospital
expenditure estimates for
each state and territory. This expenditure reflects the level of expenditure on goods and
services provided in hospitals. In contrast,
public hospital services
estimates, provided directly
from the state and territory health authorities, are used for 2003–04 onwards and reflect the
level of expenditure on goods and services provided in hospitals but
exclude
where possible
any community health services, dental services, patient transport services, public health and
health research expenditure undertaken by public hospitals. These expenditures are included
under their respective categories in the health expenditure matrix. Due to this change in data
source for public hospitals, there is a resulting break in time series between 2002–03 and
5
 
2003–04 for patient transport services, community health, public health and dental services
as well. For example, patient transport expenditure that prior to 2003–04 was captured as
part of public hospitals expenditure, would now be captured as part of patient transport
services expenditure (see Box 3 in Chapter 4 for further details).
Private hospitals
The ABS Private Hospital Survey series (ABS, cat. no. 4390.0) is the source of data on total
spending on private hospitals in this report. In previous editions of
Health expenditure
Australia
the total amount reported for private hospitals by the Institute and the ABS differed
slightly due to methodological differences.
Individual out-of-pocket expenditure for dental services, other
health practitioner services, aids and appliances, all other
medications and patient transport services
A change in the methods used to estimate individual out-of-pocket expenditure for dental
services, other health practitioner services and aids and appliances for 2002–03 onwards has
resulted in substantial revisions to these numbers in this report. The previous methods had
relied on high level ABS data which proved to be unreliable and was subject to substantial
revision over time. The new methods mostly rely on detailed private health insurance data.
As a result of this change in methods there were large upward revisions to individual
expenditure on ‘other health practitioner services’ for 2002–03, 2003–04 and 2004–05 of
$486 million (65.4%), $347 million (34.4%) and $362 million (31.6%) respectively. In contrast,
this change in methodology has generally resulted in large downward revisions to
individual out-of-pocket expenditure on aids and appliances. In 2003–04 this decrease was
$533 million (22.9%) while for 2004–05 it was $1.1 billion (35.4%). This change in
methodology did not have a substantial impact on individual out-of-pocket expenditure for
dental services.
Revisions to individual out-of-pocket expenditure on ‘all other medications’ for 2001–02
onwards meant there was a decrease of $562 million (15.2%) for individual out-of-pocket
spending on ‘all other medications’ for 2002–03, an increase of $24 million (0.7%) for 2003–04
and an increase of $309 million (8.7%) for 2004–05.
In addition, for 1997–98 onwards, there was a change in the method used to calculate
individual out-of-pocket expenditure on patient transport services by relying on data from
the Productivity Commission’s Report on Government Services (ROGS). This change in
method has resulted in downward revisions to individual out-of-pocket expenditure on
patient transport services of $171 million (43.4%) in 2002–03, $212 million (54.2%) in 2003–04
and $258 million (57.7%) in 2004–05.
The overall impact on individual out-of-pocket expenditure due to the changes in
methodology for dental services, other health practitioner services, aids and appliances, all
other medications and patient transport services was a decrease of $1.4 billion (10.5%) in
2002–03, a decrease of $1.9 billion (12.7%) in 2003–04 and a decrease of $2.5 billion (15.3%) in
2004–05, compared to what was published in
Health expenditure Australia 2004–05
(AIHW 2006a).
6
 
State and territory funding of health expenditure
The Institute received revised data from the Northern Territory health authority that has
resulted in a downward revision to Northern Territory funding of recurrent health
expenditure of $18 million for 2002–03, an upward revision of $112 million for 2003–04 and
an upward revision of $37 million for 2004–05.
Domiciliary care services expenditure is classified as welfare services expenditure not health
expenditure. This has been the case for over 10 years. However some States had been
reporting domiciliary care services expenditure as part of community health services
expenditure. This misreporting has been corrected by moving this expenditure to welfare
services where it can be identified, from 2003–04 onwards. This has resulted in quite large
downward revisions for community health services of $494 million and $584 million for
2003–04 and 2004–05 respectively.
Premium rebates claimed through the taxation system
In
Health expenditure Australia 2004–05
, premium rebates claimed through the taxation system
for 2004–05 were reported to be $314 million based on advice from the Australian Tax Office.
This preliminary estimate has been revised by the Australian Tax Office down to
$155 million.
7
 
2  Total health expenditure
Total expenditure on health goods and services in Australia in 2005–06 was estimated at
$86.9 billion (Table 1). Of this, 92.5% was for recurrent expenditure and 7.5% was for capital
expenditure and capital consumption. Total health expenditure increased by 7.1% over the
previous year ($5.8 billion). This was 1.2 percentage points lower than the average for the
decade 1995–96 to 2005–06 of 8.3%. The areas showing the highest growth in 2005–06
(Table 17) were:
•  public hospital services—up 10.1% ($2,228 million)
•  other health practitioners (such as physiotherapists, chiropractors and podiatrists, see
Table 65 for full list)—up 8.7% ($243 million)
•  medical services up 5.8% ($853 million)
•  private hospitals up 5.6% ($356 million).
In contrast, medications showed a growth of just 3.0% ($335 million) in 2005–06.
After allowing for inflation, real growth between 2004–05 and 2005–06 was estimated at 3.1%.
This was 2 percentage points below the average for the decade 1995–96 to 2005–06 of 5.1%.
The real growth between 2004–05 and 2005–06 was the lowest recorded over the decade
(Table 1).
Expenditure for research grew in real terms by 7.0% in 2005–06, followed by public hospital
services at 5.6%, community health by 5.2%, aids and appliances by 4.0%, other health
practitioners by 3.7%, private hospitals by 1.3% and medical services by 0.2% (Table A8).
Real expenditure on medications increased 1.6% in 2005–06 (Table A8) compared to an
average annual increase in constant prices of 8.6% from 1995–96 to 2005–06.
Table 1: Total health expenditure, current and constant prices
, and annual
(a )
growth rates, 1995–96 to 2005–06
Amount ($ million)  Growth rate over previous year (%)
Year  Current Constant Current Constant
1995–96  39,047  50,948 . . . .
1996–97
42,116 54,015 7.9 6.0
1997–98
44,802 56,266 6.4 4.2
1998–99 48,502 59,393 8.3 5.6
1999–00
52,442 62,786 8.1 5.7
2000–01 58,287 68,090 11.1 8.4
2001–02 63,448 70,802 8.9 4.0
2002–03 68,932 74,334 8.6 5.0
2003–04
73,945 77,036 7.3 3.6
( b)
2004–05 81,125 81,125 9.7 5.3
2005–06 86,879 83,601 7.1 3.1
Average annual growth rate
1995–96 to 1997–98    7.1 5.1
1997–98 to 2002–03    9.0 5.7
1995–96 to 2005–06    8.3 5.1
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical
notes for further information).
Source:
AIHW health expenditure database.
8
 
2.1  Health expenditure and the general level of
economic activity
The ratio of Australia’s health expenditure to GDP (health to GDP ratio) indicates the
proportion of overall economic activity contributed by health expenditure. It is estimated that
spending on health accounted for 9.0% of GDP in 2005–06—down from 9.05% in the previous
year and is a substantial increase from 7.5% in 1995–96 (Table 2). Despite the slight decrease
over the last year the overall increase in the decade was 1.5 percentage points of GDP. The
largest increase occurred in 2000–01 when the ratio grew by 0.4 percentage points. Over the
decade as a whole, GDP grew at 6.4% per year but health expenditure growth was higher at
8.3% per year (Table 2).
All expenditure on high-level residential aged care is now reported as welfare services
expenditure (see Section 1.5 and Chapter 6). Total health expenditure for previous years has
been revised to exclude the high-level residential aged care expenditure that was previously
included under health expenditure.
Table 2: Total health expenditure and GDP, current prices, and annual growth rates,
1995–96 to 2005–06
Total health expenditure    GDP
Ratio of health
Amount
Nominal
Amount
Nominal
expenditure to
Year
($ million)
growth rate (%)
($ million)
growth rate (%)
GDP (%)
1995–96  39,047 . . 518,144 . . 7.5
1996–97
42,116 7.9 545,698 5.3 7.7
1997–98
44,802 6.4 577,373 5.8 7.8
1998–99 48,502 8.3 607,759 5.3 8.0
1999–00
52,442 8.1 645,058 6.1 8.1
2000–01 58,287 11.1 689,262 6.9 8.5
2001–02 63,448 8.9 735,714 6.7 8.6
2002–03 68,932 8.6 781,675 6.2 8.8
2003–04
73,945 7.3 840,285 7.5 8.8
(a )
2004–05 81,125 9.7 896,568 6.7 9.0
2005–06 86,879 7.1 966,442 7.8   9.0
Average annual growth rate
1995–96 to 1997–98  7.1 5.6
1997–98 to 2002–03  9.0 6.2
1995–96 to 2005–06  8.3 6.4
(a)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for
further information).
Sources:
AIHW health expenditure database and ABS 2007a.
9
 
Table 3: Total health expenditure and GDP, constant prices
, and annual growth rates,
(a )
1995–96 to 2005–06
Total health expenditure    GDP
Year  Amount ($m)  Growth rate (%) Amount ($m)  Growth rate (%)
1995–96  50,948  . . 647,659  . .
1996–97
54,015 6.0 673,099 3.9
1997–98
56,266 4.2 703,258 4.5
1998–99 59,393  5.6 739,629 5.2
1999–00
62,786 5.7 769,045 4.0
2000–01 68,090  8.4 784,017 1.9
2001–02 70,802  4.0 813,542 3.8
2002–03 74,334  5.0 839,187 3.2
2003–04
77,036 3.6 873,197 4.1
(b )
2004–05 81,125  5.3 896,568 2.7
2005–06 83,601  3.1   922,772 2.9
Average annual growth rate
1995–96 to 1997–98  5.1   4.2
1997–98 to 2002–03  5.7   3.6
1995–96 to 2005–06  5.1   3.6
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Sources:
AIHW health expenditure database and ABS 2007a.
$ m illion
Per  ce nt
90,000
10.0
9.0
80,000
8.0
70,000
7.0
60,000
6.0
50,000
5.0
40,000
4.0
30,000
3.0
20,000
2.0
10,000
1.0
0
0.0
Total health expenditure Ratio of health expenditure to GDP
(a)     Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
.
Source:
Table 3
Figure 2: Total health expenditure and GDP, constant prices
, 1995–96 to 2005–06
(a )
10
 
The health to GDP ratio can increase during a period for one or both of the following reasons:
•
The level of use of health goods and services can grow at a higher rate than the growth in
the use of all goods and services in the economy (a volume effect).
•
Price changes in the health sector can be higher than the economy-wide price changes.
This is a price effect and is called ‘excess health inflation’.
These two components are shown in the last two columns of Table 4. The second last column
is the differential real volume growth and shows the increase or decrease in the volume of
health goods and services relative to the increase or decrease in the GDP volume. The last
column is excess health inflation and shows the increase or decrease in the price of health
goods and services compared to price changes in the economy as a whole.
In 2005–06, the health to GDP ratio was 9.0%, slightly down from 9.05% of GDP in 2004–05,
and up from 7.5% of GDP in 1995–96. The change in the health to GDP ratio from 2004–05 to
2005–06 was –0.6% (Table 4). This comprised a 0.1% increase in the volume of health goods
and services relative to the increase in GDP volume and a 0.8% decrease in the price of health
goods and services above price increases in the general economy. The change in the health to
GDP ratio between
2004–05 and 2005–06 was therefore due to an increase in the volume of health goods and
services and a decrease in the relative cost of these goods and services.
In contrast, in 2004–05 the change in the health to GDP ratio was 2.8% (Table 4), comprising a
2.6% faster increase in the volume of health goods and services relative to the increase in GDP
volume and a 0.3% increase in the price of health goods and services above price increases in
the general economy.
Table 4: Components of growth in the health expenditure to GDP ratio,
1995–96 to 2005–06, per cent
Ratio of health
Change in
Differential
expenditure
ratio of
real
Excess
to GDP (current
health expenditure
volume
health
Year
prices)
to GDP
growth
inflation
( a )
1995–96  7.54  . .  . .  . .
1996–97
7.72  2.4 2.0 0.4
1997–98
7.76 0.5 –0.3 0.8
1998–99  7.98  2.8 0.4 2.5
1999–00
8.13  1.9 1.7 0.2
2000–01 8.46 4.0 6.4 –2.2
2001–02  8.62  2.0 0.2 1.8
2002–03  8.82  2.3 1.8 0.5
2003–04 8.80 –0.2 –0.4 0.2
2004–05  9.05  2.8 2.6 0.3
2005–06 8.99 –0.6 0.1 –0.8
(a)  The ratio of the relative change of total health expenditure in constant prices to the relative change of
GDP in constant prices, expressed in percentage terms.
Sources:
AIHW health expenditure database and ABS 2007a.
11
 
In 2005–06, estimates indicate that real health and real GDP expenditure increased
respectively by 3.1% and 2.9% (Table 3); a negative (0.8%) excess health inflation figure
contributed to a declining nominal growth (Table 5). The health expenditure growth rate for
2005–06 (3.1%) was the lowest for the decade and compares to 8.4% in 2000–01 and 6.0% in
1996–97 (Table 1).
Both GDP and health expenditure grew in every year from 1995–96 to 2005–06 (Table 3 and
Figure 3). Apart from 2003–04, real health expenditure has grown more strongly than real
GDP in every year since 1998–99. The greatest difference in the annual rate of growth of real
health expenditure and real GDP, 6.5% was in 2000–01 (Table 3).
9
Health expenditure
GDP
8
7
6
5
4
3
2
1
0
(a)    Growth rates calculated from the preceding year to the year indicated.
(b)    Constant price expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Source:
Table 3.
Figure 3: Annual growth
of health expenditure and GDP, constant prices
,
(a )
(b )
1995–96 to 2005–06
Health inflation
The differences in the rate at which health prices move and the general level of inflation in the
economy as a whole can have a strong influence on the health to GDP ratio. The general level
of inflation is measured using the ABS implicit price deflator for GDP, and health inflation is
indicated using the total health price index (Table 5). Australia’s health inflation has tended to
move ahead of the general level of inflation in most years, with the notable exception of
2005–06. Between 1995–96 and 2005–06, the average rate of general inflation was 2.7% per year
(Table 5).
12
 
Health inflation during that period averaged 3.1% per year, giving an excess health inflation
rate of 0.4% per year. From 2004–05 to 2005–06, general inflation (the GDP implicit price
deflator) was 4.7%—the highest it has been since 2000–01. The high level of the GDP deflator
was mostly due to the higher prices received for Australia’s exports in this year. A better
measure of the actual price increases faced by consumers (rather than the GDP deflator) is the
price increase in total final consumption expenditure which was 3.0% in 2005–06 (ABS 2007a).
Table 5: Annual rates of health inflation, 1995–96 to 2005–06 (per cent)
Health
General
Excess health
Period
inflation
inflation
inflation
( a )
( b)
1995–96 to 1996–97  1.7  1.3  0.4
1996–97 to 1997–98  2.1  1.3  0.8
1997–98 to 1998–99  2.6  0.1  2.5
1998–99 to 1999–00  2.3  2.1  0.2
1999–00 to 2000–01  2.5  4.8  –2.2
2000–01 to 2001–02  4.7  2.9  1.8
2001–02 to 2002–03  3.5  3.0  0.5
2002–03 to 2003–04  3.5  3.3  0.2
2003–04 to 2004–05  4.2  3.9  0.3
2004–05 to 2005–06  3.9  4.7  –0.8
Average annual rates of inflation
1995–96 to 1997–98  1.9  1.3  0.6
1997–98 to 2002–03  2.6  2.5  0.5
1995–96 to 2005–06  3.1  2.7  0.4
(a)  Based on the total health price index (see Glossary).
(b)  Based on the implicit price deflator for GDP (see Appendix D).
Note:
Components may not add to totals due to rounding.
Sources:
AIHW health expenditure database and ABS 2007a.
2.2  Health expenditure per person
As the population grows, it could be anticipated that health expenditure must also increase,
to maintain the average level of health goods and services available to each person in the
community. By examining health expenditure on a per person basis, the influence of changes
in the overall size of the population is removed from the analysis.
During 2005–06, estimated per person health expenditure averaged $4,226, which was
$225 more per person than the previous year (Table 6). Real growth in per person health
expenditure between 1995–96 and 2005–06 averaged 3.8% per year, compared with 5.1% for
total national health expenditure (Tables 1 and 6). The difference between these two growth
rates is the result of growth in the overall size of the Australian population.
13
 
Table 6: Average health expenditure per person
, current and constant prices
, and annual growth
( a)
(b )
rates, 1995–96 to 2 005–06
Amount ($)    Growth rate over previous year (%)
Year  Current Constant Current Constant
1995–96  2,146  2,800 . .  . .
1996–97
2,286 2,932 6.5  4.7
1997–98
2,407 3,022 5.3  3.1
1998–99 2,577 3,156 7.1 4.4
1999–00
2,754 3,297 6.9  4.5
2000–01 3,023 3,531 9.8 7.1
2001–02 3,247 3,624 7.4 2.6
2002–03 3,485 3,758 7.3 3.7
2003–04
3,692 3,847 6.0 2.4
( c)
2004–05 4,001 4,001 8.4 4.0
2005–06 4,226 4,066 5.6 1.6
Average annual growth rate
1995–96 to 1997–98    5.9  3.9
1997–98 to 2002–03    7.7  4.5
1995–96 to 2005–06    7.0  3.8
(a)  Based on annual mean resident population (see Appendix G).
(b)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(c)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Source:
AIHW health expenditure database.
2.3  Health expenditure in states and territories
Average health expenditure per person varies from state to state because of different
socioeconomic and demographic profiles, and the mix of public and private providers in each
state and territory. In addition, health expenditure is influenced by the different health policy
initiatives pursued by each State and territory government and the Australian Government.
Consequently, while health expenditure per person is similar across most populations, there
are differences between the states and territories in the way health expenditure is distributed.
Estimates of health expenditure on a state and territory basis have been done since
1996–97. The highest real growth in recurrent health expenditure, between 2003–04 and
2005–06, occurred in the Northern Territory (12.0%) where real recurrent health expenditure
increased from $886 million in 2003–04 to $992 million in 2005–06. The lowest growth occurred
in Tasmania (5.8%), where real recurrent health expenditure increased from $1,613 million to
$1,707 million during that period (Table 8). Growth in health expenditure is the result of extra
services provided per person and population growth.
14

Table 7: Total recurrent health expenditure
, current prices, for each state and territory, all sources
( a)
of funds, 1996–97 to 2005–06 ($ million)
Year  NSW  Vic Qld WA  SA Tas ACT  NT Australia
1996–97 13,495 9,968 7,087 3,577 3,010 1,143  703  450  39,433
1997–98 14,243 10,509 7,496 3,977 3,183 1,113  733  506  41,759
1998–99 15,754 11,071 7,890 4,147 3,509 1,137  863  523  44,892
1999–00
16,581 12,153 8,589 4,523 3,852 1,233 1,007  590  48,528
2000–01 18,064 13,767 9,789 5,103 4,183 1,339  933  632  53,810
2001–02 19,774 15,204 10,394 5,568 4,542 1,576 1,051  683  58,792
2002–03 21,187 16,664 11,298 6,281 5,068 1,502 1,169  771  63,941
Break in series
2003–04
23,293 17,129 12,258  6,825 5,503 1,548 1,274  852  68,682
(b )
2004–05 25,440 18,825 13,431 7,519 5,977 1,669 1,403  932  75,196
2005–06 26,951 19,992 14,819 7,962 6,351 1,775 1,506 1,034  80,389
(a)  The recurrent expenditure estimates in this table cannot be compared with total expenditure estimates in Table 7 of
Health expenditure
Australia 2004–05
(AIHW (2006a)).
(b)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
Table 8: Total recurrent health expenditure
, constant prices
, for each state and territory, all
( a)
(b )
sources of funds, and per cent change, 1996–97 to 2005–06 ($  million)
Year  NSW  Vic Qld WA  SA Tas ACT  NT Australia
1996–97  17,582 13,073 9,122 4,606 3,809 1,441  930  578 51,140
1997–98  18,155 13,431 9,460 5,018 3,979 1,383  946  639 53,011
1998–99  19,562 13,782 9,724 5,100 4,284 1,374 1,087  641 55,554
1999–00
20,045 14,752 10,357 5,437 4,596 1,466 1,230  707 58,589
2000–01  21,311 16,263 11,555 6,000 4,889 1,562 1,113  741 63,432
2001–02  22,242 17,088 11,644 6,234 5,070 1,764 1,188  762 65,994
2002–03  22,987 18,063 12,203 6,787 5,470 1,622 1,265  832 69,229
Break in series
2003–04
24,335 17,881 12,760 7,107 5,732 1,613 1,328  886 71,641
(c )
2004–05  25,440 18,825 13,431 7,519 5,977 1,669 1,403  932 75,196
2005–06  25,869 19,216 14,264 7,655 6,105 1,707 1,446  992 77,254
Growth rate (%)
2003–04 to
2005–06  6.3 7.5 11.8 7.7 6.5 5.8 8.9 12.0 7.8
(a)  The recurrent expenditure estimates in this table cannot be compared with total expenditure estimates in Table 8 of
Health expenditure
Australia 2004–05
(AIHW (2006a)).
(b)  Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.
(c)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
15

Table 9: Average recurrent health expenditure
per person
, current prices, for each state and
( a)
(b )
territory
, all sources of funds, 1996–97 to 2005–06 ($)
(c )
Year NSW Vic Qld WA SA Tas NT Australia
1996–97  2,161 2,176 2,104 2,008 2,037 2,410 2,442  2,140
1997–98  2,258 2,276 2,190 2,199 2,143 2,353 2,685  2,243
1998–99  2,471 2,374 2,271 2,257 2,349 2,409 2,731  2,385
1999–00
2,571 2,577 2,432 2,428 2,564 2,614 3,040  2,548
2000–01  2,766 2,884 2,723 2,702 2,773 2,839 3,215  2,790
2001–02  2,993 3,144 2,830 2,908 2,995 3,338 3,439  3,009
2002–03  3,185 3,404 2,999 3,240 3,320 3,162 3,865  3,232
Break in series
2003–04
3,480 3,456 3,174 3,467 3,582 3,221 4,240  3,430
(d )
2004–05  3,779 3,750 3,395 3,759 3,864 3,443 4,563  3,709
2005–06  3,970 3,927 3,660 3,905 4,070 3,633 4,954  3,965
Difference from national average (per cent)
2005–06  0.1   –1.0   –7.7  –1.5  2.7  –8.4  25.0
(a)  The recurrent expenditure estimates in this table cannot be compared with total expenditure estimates in Table 9 of
Health expenditure
Australia 2004–05
(AIHW (2006a)).
(b)  Based on annual mean resident population (see Appendix G).
(c)  ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents. Thus
the ACT population is not the appropriate denominator.
(d)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Source:
AIHW health expenditure database.
$ pe r person
6,000
5,000
4,000
3,000
2,000
1,000
0
NSW V ic Qld WA S A Tas NT A u st
(a)  Based on annual mean resident population (see Appendix G).
(b)  ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW
residents. Thus the ACT population is not the appropriate denominator.
Source:
Table 9.
Figure 4: Average recurrent health expenditure per person
, current prices, for each state and
( a)
territory
, 2005–0 6 ($)
(b )
16

Table 10: Average recurrent health expenditure per person
, constant prices
, for each state and
( a)
(b )
territory
, all sources of funds, 1996–97 to 2005–06 ($)
(c )
Year NSW Vic Qld WA SA Tas NT Australia
1996–97  2,816 2,854 2,708 2,586 2,577 3,037 3,136 2,776
1997–98  2,878 2,908 2,764 2,774 2,678 2,924 3,393 2,847
1998–99  3,068 2,956 2,799 2,776 2,868 2,912 3,349 2,952
1999–00
3,108 3,128 2,933 2,918 3,060 3,108 3,639 3,077
2000–01  3,263 3,406 3,215 3,177 3,241 3,312 3,769 3,289
2001–02  3,367 3,534 3,171 3,257 3,343 3,735 3,840 3,378
2002–03  3,455 3,690 3,239 3,501 3,583 3,415 4,170 3,500
Break in series
2003–04
3,636 3,608 3,303 3,611 3,731 3,356 4,409 3,577
(d )
2004–05  3,779 3,750 3,395 3,759 3,864 3,443 4,563 3,709
2005–06  3,810 3,775 3,523 3,755 3,912 3,495 4,752 3,758
(a)  Based on annual mean resident population (see Appendix G).
(b)  Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.
(c)  ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents.
Thus the ACT population is not the appropriate denominator.
(d)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Source:
AIHW health expenditure database.
The per person recurrent health expenditure estimates must be treated with caution as the
expenditure estimates often include costs of interstate patients, whereas the population used
for the calculation is the resident population of the state.
This state-based health expenditure data include estimates of expenditure that have been
funded by sources other than the state and territory governments. These include funding by
the Australian Government, private health insurance funds, individuals (through
out-of-pocket payments) and providers of injury compensation cover. This means that these
estimates of expenditure within a state are not limited to the areas of responsibility of state
and territory governments.
On a per person basis, in 2005–06, the estimated national average level of recurrent
expenditure on health was $3,965 per person (current prices). In 2005–06, Tasmania ($3,633)
had the lowest average level of expenditure—8.4% below the national average (Table 9 and
Figure 4). In 1996-97, Tasmania was 12.6% above the national average (calculated from
Table 9). The Northern Territory ($4,954) had 25% higher per person expenditure than the
national average in 2005–06 (Table 9). New South Wales, Victoria and Western Australia were
within 2% of the national average.
Average annual real growth in recurrent health expenditure per person over the period
2003–04 to 2005–06 was highest in the Northern Territory (3.8%) and lowest in Western
Australia and Tasmania (both 2.0%). The national average for that period was 2.5% (Table 11).
To the greatest extent possible, the AIHW has applied consistent methods to derive estimates
for the different states and territories. But there will be differences from one jurisdiction to
another in the quality of the data on which these estimates are based. This means that, while
some broad comparisons can be made, caution should be exercised when comparing the
results for jurisdictions.
17

Table 11: Annual growth in recurrent health expenditure
per person
, constant prices
, all
(a )
(b )
(c )
sources of funding, by state and territory
, 1996–97 to 2005–06 (per cent)
(d )
Period  NSW  Vic Qld WA  SA Tas  NT Australia
1996–97 to 1997–98  2.2 1.9 2.1 7.3 3.9 –3.7 8.2  2.6
1997–98 to 1998–99  6.6 1.6 1.3 0.1 7.1 –0.4 –1.3  3.7
1998–99 to 1999–00  1.3 5.8 4.8 5.1 6.7 6.8 8.7  4.2
1999–00 to 2000–01  5.0 8.9 9.6 8.9 5.9 6.6 3.6  6.9
2000–01 to 2001–02
3.2 3.7 –1.4 2.5 3.2 12.8 1.9  2.7
2001–02 to 2002–03
2.6 4.4 2.2 7.5 7.2 –8.6 8.6  3.6
2002–03 to 2003–04
. .  . .  . .  . .  . .  . .  . .  . .
Break in series
2003–04 to 2004–05
3.9 4.0 2.8 4.1 3.6 2.6 3.5  3.7
2004–05 to 2005–06
0.8 0.6 3.8 –0.1 1.2 1.5 4.1  1.3
Average annual growth rate
1997–98 to 2002–03
3.7 4.9 3.2 4.8 6.0 3.2 4.2  4.2
(e )
2003–04 to 2005–06
2.4 2.3 3.3 2.0 2.4 2.0 3.8  2.5
(e )
(a)  The recurrent expenditure estimates in this table can not be compared with total expenditure estimates in Table 10 of
Health
expenditure Australia 2004–05
(AIHW (2006a)).
(b)  Based on annual mean resident population (see Appendix G).
(c)  Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.
(d)  ACT per person figures are not calculated, as the expenditure numbers for the ACT include substantial expenditures for NSW residents.
Thus the ACT population is not the appropriate denominator.
(e)  Australian Health Care Agreement periods.
Source:
AIHW health expenditure database.
2.4  Sources of growth in real health expenditure
Expenditure on hospitals accounted for the largest proportion of real growth in recurrent
health expenditure between 2003–04 and 2005–06 (42.0%)—public hospital services (37.8%)
and private hospitals (4.2%). Expenditure on medications accounted for 16.5% of the growth
and medical services accounted for 13.8% (calculated from Table 20). Most of the growth in
medication expenditure occurred in 2003–04 (7.8% growth on previous year) and 2004–05
(7.1% growth), with just 1.6% growth in this area in 2005–06 (Table 20). Together, these three
areas of expenditure accounted for 72% of the growth in expenditure during the last three
years (calculated from Table 20). The combined expenditure of these three areas as a
percentage of GDP rose in real terms from 5.9% in 2003–04 to 6.0% in 2005–06 (calculated from
Tables 3 and 20).
2.5  Sources of nominal growth in health expenditure
The nominal (current price) growth in health expenditure can be analysed in terms of
population growth, inflation and the real increase in expenditure per person. Real increase in
expenditure per person is indicative of increases in service use per person.
18
 
Two factors contribute to nominal growth in health expenditure:
•
the combined effects of general inflation and excess health inflation
•
changes in the quantities of services used, reflecting either population growth
(less significant in Australia’s case) or more intensive per capita use of services.
Underlying these two factors are the effects of changes in the population’s age structure,
changes in the composition and relative prices of health goods and services, changes in
technology and medical practice and general economic and social conditions.
Nominal health expenditure grew from $39.0 billion in 1995–96 to $86.9 billion in 2005–06
(Table 1). Of the $47.8 billion increase, 40.2% ($19.2 billion) was due to inflation,
15.3% ($7.3 billion) was from population growth and 44.5% ($21.3 billion) was due to an
increase in real expenditure per person. The interactions between the three growth elements
have been allocated in proportion to the size of each growth element.
19
 
3  Funding of health expenditure in
Australia
3.1 Broad trends
This section makes broad comparisons between government and non-government funding
(as described in Section 1.2). Sections 3.2 and 3.3 discuss in more detail the funding
arrangements within the government and non-government sectors. Chapter 4 provides an
analysis of funding of specific classes of health goods and services (including capital).
In 2005–06, government funding of health expenditure was $58.9 billion (67.8%), with the
Australian Government contributing $37 billion (42.9%) and state, territory and local
governments contributing $22 billion (24.9%). The non-government sector (households,
private health insurance and other non-government) funded the remaining $28 billion (32.2%)
(Tables 12 and 13). In current prices, from 2004-05 to 2005-06, Australian Government funding
of health expenditure increased by 4.7% ($1,675 million), state, territory and local
governments funding increased by 11.9% ($2,309 million) and non-government funding
increased by 6.8% ($1,771 million).
After allowing for inflation, real growth in Australian Government funding of health grew by
an average of 4.9% a year from 1995-96 to 2005-06, state and territory government funding
grew by 6.2% and non-government funding grew by 4.5% a year (Table 21).
In 2005–06, the Australian Government’s total funding grew, in real terms, by 0.7%, state,
territory and local governments funding grew by 7.6% and non-government funding grew by
2.9% (Table 21).
From 1995–96 to 2005–06, the relative shares of funding of total health expenditure remained
fairly stable for both the government and non-government sectors (Table 13 and Figure 5).
Around two-thirds of funding was provided by governments and one-third by
non-government.
20
 
Table 12: Total health expenditure, current prices, by broad source of funds,
1995–96 to 2005–06 ($ million)
Government
Non-
Australian
State/territory
Year
government
Total
( a )
Government
and local Total
( a )
1995–96 16,847 9,037 25,884 13,162 39,047
1996–97
17,354 10,357 27,711 14,405 42,116
1997–98
18,852 11,332 30,184 14,618 44,802
1998–99 21,015 11,519 32,534 15,968 48,502
1999–00
23,183 12,969 36,152 16,290 52,442
2000–01 25,849 13,567 39,417 18,871 58,287
2001–02 27,700 14,564 42,264 21,184 63,448
2002–03 29,960 16,512 46,472 22,460 68,932
2003–04
31,998 17,761 49,759 24,186 73,945
( b)
2004–05 35,554 19,337 54,891 26,233 81,125
2005–06 37,229 21,646 58,875  28,004 86,879
(a)  Funding of expenditure has been adjusted for non-specific tax expenditures.
(b)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical
notes for further information).
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
The relative shares of health expenditure funding by the different levels of government varied
over the decade. The Australian Government contribution varied from a low of 41.2%in
1996–97 to a high of 44.3% in 2000–01 and ended at 42.9% in 2005–06 (Table 13). Over the same
period, the contribution from state, territory and local governments fluctuated between 23.1%
in 1995–96 and a high of 25.3% in 1997–98.
Table 13: Total health expenditure, current prices, by broad source of funds as a proportion of total
health expenditure, 1995–96 to 2005–06 (per cent)
Government  Non-government
State/
Health
Other non-
Australian
territory
insurance
Individ-
govern-
Year
Government
and local  Total
funds
uals
ment Total Total
( a )
( a )
1995–96 43.1 23.1 66.3 11.3 15.6 6.8 33.7 100.0
1996–97
41.2 24.6 65.8 11.2 16.4 6.6  34.2 100.0
1997–98
42.1 25.3 67.4 9.5 16.3 6.8  32.6 100.0
1998–99 43.3 23.8 67.1 7.9 17.2 7.8 32.9 100.0
1999–00
44.2 24.7 68.9 6.9 16.7 7.5  31.1 100.0
2000–01 44.3 23.3 67.6 7.1 18.0 7.3 32.4 100.0
2001–02 43.7 23.0 66.6 8.0 18.1 7.3 33.4 100.0
2002–03 43.5 24.0 67.4 7.9 17.3 7.4 32.6 100.0
2003–04 43.3 24.0 67.3 7.8 17.4 7.5 32.7 100.0
2004–05 43.8 23.8 67.7 7.4 17.3 7.6 32.3 100.0
2005–06 42.9 24.9 67.8 7.2 17.4 7.6 32.2 100.0
(a)  Funding of expenditure has been adjusted for non-specific tax expenditures.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
21
 
Per  cent
50.0
Australian Governme nt
45.0
40.0
35.0
30.0
State/territory & lo cal go vernm ents
25.0
20.0
Individuals (out-of-pocke t)
15.0
Health insurance funds
10.0
5.0
Other non-governme nt
(a )
0.0
(a)  Includes funding by injury compensation insurers.
Source:
AIHW health expenditure database.
Figure 5: Total health expenditure, current prices, by source of funds as a proportion
of total health ex penditure, 1995–96 to 2005–06 (per cent)
Health funding can also be expressed as a proportion of GDP. Over the decade from 1995–96
to 2005–06, the Australian Government increased its share from 3.3% to 3.9% of GDP. For
state, territory and local governments, the proportion increased from 1.7% to 2.2%.
Non-government sources increased their share of GDP from 2.5% to 2.9% (Table 14).
Table 14: Total health expenditure, current prices, by broad source of funds as a
proportion of GDP, 1995–96 to 2005–06 (per cent)
Government
Australian
State/territory
Non-
Year
Government
and local Total
government
Total
( a )
( a )
1995–96 3.3 1.7 5.0 2.5 7.5
1996–97
3.2 1.9 5.1 2.6 7.7
1997–98
3.3 2.0 5.2 2.5 7.8
1998–99 3.5 1.9 5.4 2.6 8.0
1999–00
3.6 2.0 5.6 2.5 8.1
2000–01 3.8 2.0 5.7 2.7 8.5
2001–02 3.8 2.0 5.7 2.9 8.6
2002–03 3.8 2.1 5.9 2.9 8.8
2003–04 3.8 2.1 5.9 2.9 8.8
2004–05 4.0 2.2 6.1 2.9 9.0
2005–06 3.9 2.2 6.1 2.9 9.0
(a)  Funding of expenditure has been adjusted for non-specific tax expenditures.
Note:
Components may not add to totals due to rounding.
Sources:
AIHW health expenditure database and ABS 2007a.
22
 
Total recurrent funding
In real terms, recurrent funding of health grew by an average of 4.8% a year from 1995–96
($48.4 billion) to 2005–06 (($77.3 billion) (Table 20). The government sector’s recurrent funding
grew by 5.2% per year (from $31.8 billion in 1995–06 to $53.0 billion in 2005–06), while
non-government recurrent funding grew by 3.9% ($16.6 billion to $24.3 billion)
(Tables 18 and 19). These growth rates are similar to those for government (5.4%) ($33.5 billion
to $56.6 billion) and non-government funding (4.5%) ($17.4 billion to $27.0 billion) of total
health expenditure (Table 21).
Medications experienced the highest real growth in total recurrent funding between 1995–96
and 2005–06 (averaging 8.6% per year) ($5.0 billion to $11.4 billion). Private hospitals
experienced a growth of 4.5% ($4.1 billion to $6.4 billion) whereas medical services had a
growth of 2.6% ($11.3 billion to $14.7 billion) (Table 20).
Government funding
Between 1995–96 and 2005–06, the areas that attracted the most rapid real growth in
government funding were private hospitals (averaging 21.3% per year) ($381 million to
$2.6 billion) and medications (9.1%) ($2.6 billion to $6.1 billion) (Table 18). The growth in
government funding of private hospitals was mostly due to the Australian government
introducing subsidies for private health insurance. The increased use of private hospitals by
veterans funded by the Department of Veterans’ Affairs (DVA) also contributed. During this
period total government funding of recurrent health expenditure grew, in real terms, at a
similar rate (averaging 5.2% per year) ($31.8 billion to $53.0 billion) to growth for total funding
of recurrent health expenditure (4.8%) ($48.4 billion to $77.3 billion) (Tables 18 and 20).
In 2005–06, public hospital services and medical services received the highest amounts of
government funding for recurrent expenditure ($22.5 billion and $12.2 billion respectively)
(Table 15). In contrast, dental services and other health practitioners received $995 million and
$711 million respectively.
Non-government funding
The areas that attracted the fastest real growth in funding by non-government sources
between 1995–96 and 2005–06 were medications, averaging 8.0% per year ($2.4 billion to
$5.2 billion) and medical services, averaging 4.5% per year ($2.0 billion to $3.1 billion)
(Table 19).
Non-government funding for private hospitals fluctuated over the decade with declines in
some years when government funding for private hospitals increased significantly, and
growth in other years—overall an average annual increase of 0.1% per year compared to an
average annual increase of 4.5% per year for all funding (Tables 19 and 20).
For the decade to 2005–06, total non-government funding of recurrent health expenditure
grew, in real terms, by 3.9% ($16.6 billion to $24.3 billion) compared with 4.8% growth
($48.4 billion to $77.3 billion) for total funding of recurrent health expenditure
(Tables 19 and 20).
In 2005–06, medications and dental services received the highest amounts of non-government
funding for recurrent expenditure ($5.4 billion and $4.3 billion respectively) (Table 16).
Other health practitioners received $2.3 billion.
23
 
26,000
24,000
Non-government (total $25,246 million)
22,000
State/territory and local gov ernments (total $18,514 million)
20,000
18,000
Australian Gov ernment (total $36,629 million)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
(a)     Public hospital services excludes dental services, community health services, patient transport services, public health and health
research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or
other services.
(b)     Other health comprises patient transport services, administration and research.
Source:
AIHW health expenditure database.
Figure 6: Recurrent health expenditure, by area of expenditure and source of funds, current
prices, 2005–06
24

 

 

3.2  Government sources of funds
In 2005–06, government funding of total health expenditure was $58.9 billion (Table A3). The
Australian Government contributed $37.2 billion (Table 22) which was 42.9% of total funding
for health by all sources of funds (Table 13 and Figure 5). State, territory and local
government sources provided 24.9%.
Australian Government
In 2005–06, the Australian Government provided 63.2% of total government health funding
(calculated from Table 12).
The Australian Government’s contribution to funding for health includes:
•
payments through DVA in respect of eligible veterans and their dependants
•
specific purpose payments (SPPs) to the states and territories for health purposes
•
direct expenditure by the Australian Government on health programs (such as Medicare
and PBS)
•
rebates and subsidies under the
Private Health Insurance Act 2007
and prior Acts
•
taxation expenditures.
Table 22: Funding of total health expenditure by Australian Government, current prices, by type
of expenditure, 1995–96 to 2005–06 ($ million)
Rebates of
Grants to
Direct
Non-specific tax
health insurance
Year DVA
states
expenditure
expenditure  Total
premiums
( a)
1995–96 1,489 5,012  . . 10,255 91 16,847
1996–97
1,608 4,989 . . 10,644 113 17,354
1997–98
1,619 5,651 407 11,047 128 18,852
1998–99 1,904 6,201  963 11,801 145 21,015
1999–00
2,180 6,440 1,576 12,826 162 23,183
2000–01 2,371 6,996 2,031 14,278 173 25,849
2001–02 2,593 7,391 2,118 15,395 203 27,700
2002–03 2,836 8,095 2,306 16,498 225 29,960
2003–04 3,013 8,219 2,516 17,998 251 31,998
2004–05 3,162 8,840 2,827 20,435 290 35,554
2005–06 3,126 9,235 3,177 21,361 329 37,229
(a)  Includes health insurance rebates claimed through the taxation system as well as rebates paid directly to health insurance funds
which enable them to reduce premiums charged.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
The Department of Veterans’ Affairs
DVA funding of health is through its purchase of health goods and services on behalf of
eligible veterans and their dependants. In 2005–06, its funding totalled $3,126 million
(Table 23). Almost half of this (48.6%) was for hospitals (public hospital services and private
hospitals).
32
 
Table 23: Department of Veterans’ Affairs health expenditure,
current prices, by area of expenditure, 2005–06
Amount
Proportion
Area of expenditure
($m)
(%)
Public hospital services
684 21.9
(a )
Private hospitals  834  26.7
Patient transport services  96  3.1
Medical services  767  24.5
Dental services  86  2.7
Other health practitioners  132  4.2
Community health  2  —
Medications 468 15.0
Aids and appliances  1  —
Administration 55 1.8
Research 2 0.1
Total 3,126 100.0
(a)  Public hospital services excludes dental services, community health services, patient
transport, public health and health research undertaken by the hospital. Can include
services provided off the hospital site such as hospital in the home dialysis or other services.
Source:
AIHW health expenditure database.
Grants to states and territories
Most of the SPPs by the Australian Government to state and territory governments were
provided under the Australian Health Care Agreements (AHCAs) between these two levels
of government. The payments were primarily directed to expenditure on public hospital
services in the states and territories. Another SPP that was regarded as funding of public
hospitals were payments for highly specialised drugs. The 30% rebate on private health
insurance was also included as funding by the Australian Government for public hospitals.
The Australian Government also provides funding to the states and territories through the
Public Health Outcome Funding Agreements (PHOFAs). The PHOFAs are bilateral funding
agreements between the Australian Government and each state and territory. They provide
broadbanded and specific purpose funding from the Australian Government to the states
and territories for a range of public health programs. The current PHOFAs cover five years,
from 2004–05 to 2008–09.
Direct Australian Government expenditures
The Australian Government also funds health programs such as Medicare, the PBS, public
health, research, the Aboriginal community controlled health and substance use services,
and health expenditure-related capital consumption and expenditure. In 2005–06, the
Australian Government funded $21.4 billion of direct expenditure (Table 22).
Rebates of health insurance contributions (30% rebate)
There are two methods for claiming the 30% rebate on private health insurance premiums.
The first involves a reduced premium being charged by the private health insurance fund
(with a subsequent reimbursement to the fund by the Australian Government). The second is
33
 
where the private health insurance fund charges the full (non-rebated) premium and the
person paying the full premium claims the 30% rebate directly from the Australian
Government through the taxation system. This rebate was regarded as part of Australian
Government expenditures from 1997–98 onwards.
During 2005–06, the total value of the 30% rebate was $3.2 billion (Table 22). $3.0 billion was
in the form of subsidies to private health insurance funds with the balance provided in the
form of rebates to individuals through the taxation system.
Non-specific tax expenditure
The only tax expenditure included here is the medical expense tax rebate. This tax concession
is the tax rebate of 20 cents in the dollar that can be claimed in respect of health expenditures
that exceed a prescribed threshold. In 2005–06 that threshold was $1,500 per taxpayer. These
expenditures cannot be allocated to any particular area(s) of health expenditure so are
included ‘below the line’ in the health expenditure tables. In 2005–06, the total value of such
tax expenditures was $329 million (Tables 22 and 50).
State and territory governments and local government authorities
State and territory governments are the main providers of publicly provided health goods
and services in Australia. Those goods and services are financed by a combination of SPPs
from the Australian Government, funding by the states and territories out of their own fiscal
resources, and funding from non-government sources (usually in the form of user fees).
In terms of the types of health goods and services funded by the states and territories and by
local government authorities, spending on public hospital services dominates, accounting for
66.8% ($12.4 billion) of recurrent funding provided by these government sources in 2005–06
(calculated from Table A3).
In real terms, funding for health by state, territory and local governments increased, by an
average of 6.2% per year between 1995–96 and 2005–06. In comparison, Australian
Government funding increased by 4.9% per year in this period (Table 21).
3.3 Non-government funding
Non-government funding was 32.2% ($28 billion) of total funding in 2005–06 (Table 24). In
1997–98, non-government funding was 32.6%, a decrease of 1.6 percentage points from
1996–97. The fall after 1996–97 was largely due to Australian Government subsidies for
private health insurance. The effect of that subsidy is the benefits that paid for private health
goods and services used by insured people became jointly funded by the Australian
Government (through the contribution rebates) and the fund contributors. Since 2001–02,
the non-government share has averaged around 33.0%.
Most non-government funding for health goods and services in Australia comes from
out-of-pocket payments by individuals. This includes situations where individuals meet the
full cost of a service or good as well as where they share the funding of goods and services
with third-party payers—for example, private health insurance funds or the Australian
Government. Funding by individuals accounted for 53.9% ($15.1 billion) of estimated
non-government funding of health goods and services during 2005–06 (calculated from
Table 24). This was 17.4% of total funding of health expenditure. That proportion rose by
34
 
1.8 percentage points in the decade to 2005–06. Private health insurance funds provided
7.2% of total funding of health expenditure ($6.3 billion) in 2005–06, down from 11.3% in
1995–96. The remaining 7.6% ($6.6 billion) came from other non-government sources (mainly
compulsory motor vehicle third-party and workers’ compensation insurers) (Table 24).
Over the decade to 2005–06, non-government sector funding provided by private health
insurance funds decreased 4 percentage points from 11% to 7%, funding by individuals
increased by 2 percentage points from 15.6% to 17.4% and funding by other
non-government sources increased by 1 percentage point (Table 24).
The decrease in funding by private health insurance reflected the 30% rebate for private
health insurance from the Australian Government. Private health insurance benefits that
were previously funded almost entirely by private health insurance premiums were instead
funded 30% by the Australian Government. In 2005–06, 4% of total health expenditure was
funded by the Australian Government’s 30% rebate and 7% was funded through private
health insurance (calculated from Table A3).
Table 24: Non-government sector funding of total health expenditure, by source of funds, current
prices, 1995–96 to 2005–06
All non-government
Health
Other
insurance funds
Individuals
non-government
sources
(a )
( b)
( c)
(a ) ( b)
Amount
Proportion
Amount
Proportion
Amount
Proportion
Amount
Proportion
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  4,426 11.3  6,088 15.6 2,649 6.8  13,162 33.7
1996–97
4,700 11.2  6,910 16.4 2,795 6.6  14,405 34.2
1997–98
4,271 9.5  7,322 16.3 3,025 6.8  14,618 32.6
1998–99 3,855 7.9  8,338 17.2 3,774 7.8  15,968 32.9
1999–00
3,601 6.9  8,777 16.7 3,912 7.5  16,290 31.1
2000–01 4,123 7.1  10,511 18.0 4,237 7.3  18,871 32.4
2001–02 5,075 8.0  11,506 18.1 4,603 7.3  21,184 33.4
2002–03 5,415 7.9  11,932 17.3 5,112 7.4  22,460 32.6
2003–04
5,790 7.8  12,861 17.4 5,535 7.5  24,186 32.7
(d )
2004–05 6,038 7.4  14,019 17.3 6,176 7.6  26,233 32.3
2005–06  6,284  7.2     15,086 17.4   6,634 7.6    28,004  32.2
(a)  Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.
(b)  Adjusted for non-specific tax expenditures.
(c)  All non-government sector capital expenditure is included here, as the details of funding of non-government capital expenditure is not
known. If funding was known, this capital expenditure would be spread across all funding columns.
(d)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
35
 
Individuals
Real growth in expenditure by individuals between 1995–96 and 2005–06 was 6.0% per year,
0.9 percentage points above the real growth in total health expenditure (5.1%)
(Tables 1 and 25).
Table 25: Non-government sector funding of total health expenditure, by source of funds, constant
prices
, and annual growth rates, 1995–9 6 to 2005–06
(a )
Private health
Other
All non-government
insurance funds
Individuals
non-government
sources
(b)
( c)
( d)
(b )( c )
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  5,933  . .    8,115 . . 3,362 . .   17,411  . .
1996–97
6,162 3.9  9,018 11.1 3,497 4.0  18,677 7.3
1997–98
5,473 –11.2  9,232 2.4 3,738 6.9  18,443  –1.3
1998–99 4,808 –12.1  10,302 11.6 4,537 21.4  19,647 6.5
1999–00
4,376 –9.0  10,556 2.5 4,633 2.1  19,565 –0.4
2000–01  4,918 12.4  12,155 15.1 4,842 4.5  21,916 12.0
2001–02 5,726 16.4  12,861 5.8 5,052 4.3  23,638 7.9
2002–03  5,880 2.7  12,924 0.5 5,446 7.8  24,251 2.6
2003–04
6,044 2.8  13,410 3.8 5,756 5.7  25,210 4.0
(e )
2004–05 6,038 –0.1  14,019 4.5 6,176 7.3  26,233 4.1
2005–06  6,022  –0.3     14,558 3.8   6,402 3.7    26,982  2.9
Average annual growth rate
1995–96 to 1997–98  –4.0    6.7 5.4     2.9
1997–98 to 2002–03  1.4    7.0 7.8     5.6
1995–96 to 2005–06  0.1    6.0 6.7     4.5
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.
(c)  Adjusted for non-specific tax expenditures.
(d)  All non-government sector capital expenditure is included here, as the details of funding of non-government capital expenditure is not
known. If funding was known, this capital expenditure would be spread across all funding columns.
(e)  Due to changes in methods, care must be taken comparing 2002–03 to 2003–04 (see section 7.3 in the Technical notes for further
information).
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
In 2005–06, of the estimated $15.4 billion out-of-pocket recurrent expenditure by individuals
on health goods and services (Figure 7):
•
34.2% was spent on medications
–
8.0% on PBS and RPBS patient contributions
–
26.2% on other medications (see Table 65 for a detailed definition)
•
23.2% on dental services
•
13.4% on aids and appliances
•
11.3% on medical services
•
10.7% on other health practitioners (such as physiotherapists, chiropractors and
podiatrists, see Table 65 for full list).
36
 
Priv ate hospitals
Public hos pital
1.8%
Patient transport
services
( b )
services
2.5%
1.4%
Aids  and appliances
13.4%
Medical services
11.3%
All other medications
26.2%
Total fun ding: $15,415 million
( a )
Dental servic es
23.2%
Benefit-paid
pharmaceuticals
Other health
8.0%
practitioners
Community  health
10.7%
and other
( c )
Public  health
1.1%
0.3%
(a)  Individuals’ expenditure not adjusted for non-specific tax expenditures.
(b)     Public hospital services excludes dental services, community health services, patient transport services, public health and health
research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or
other services.
(c)  ‘Other’ refers to other non-institutional health services n.e.c.
Source:
Table A3.
Figure 7: Individuals’ funding
of recurrent health expenditure, by area of expenditure,
(a)
curre nt prices, 2005–06
In real terms, average out-of-pocket health expenditure per person grew by 4.8% per year
from 1995–96 to 2005–06 (Table 26). Over this period, benefit-paid pharmaceuticals had a real
growth of 8.1% per year compared to all other medications (6.5%). In contrast, average per
person out-of-pocket expenditure on medical services grew at just 3.0% per year.
37

Private health insurance
Funding by private health insurance is chiefly directed towards private hospitals. During
2005–06, private hospitals received 48.6% ($3.1 billion) of the $6.3 billion in funding provided
by health insurance funds (Figure 8 and Table 27). Other major areas of expenditure that
received funding were dental services (12.1% or $760 million), administration (10.2% or
$639 million) and medical services (10.1% or $636 million). The funding for medical services
includes some of the cost of in-hospital medical services which are provided to private
admitted patients in hospitals. Patient transport services and medications received the least
funding from health insurance funds in 2005–06 ($92 million and $47 million respectively)
(Table 27).
Public hospital
services
(a )
Other health
(b )
6.5%
6.4%
Administration
10.2%
Other health
practitioners
6.1%
Total fu ndin g: $6,284 m illion
Dental services
12.1%
Private hospitals
48.6%
Medical services
10.1%
(a)  Public hospital services excludes expenditure on dental services, community health services, patient transport services,
public health and health research undertaken by the hospital. Can include services provided off the hospital site such as
hospital in the home dialysis or other services.
Source:
Table 27.
Figure 8: Funding of recurrent health expenditure through private health insurance funds,
by area of expenditure, current prices, 2005–06
General benefits and administration
Gross health benefits paid through the health insurance funds in 2005–06 amounted to
$8,499 million—up $526 million from $7,973 million in 2004–05 and up $1,044 million since
2003–04 (Table 27). A further $962 million was used to fund administration during 2005–06;
this showed a steady increase from $852 million in 2003–04 and $892 million in 2004–05. The
39
 
premium rebates paid by the Australian Government through the tax system or directly to
private health insurance funds increased from $2,256 million in 2003–04 to $2,854 million in
2005–06.
The reserves of the health insurance funds overall continued to increase in 2005–06, with the
operating profit before abnormals and extraordinary items rising from $447 million in
2003–04 to $984 million in 2005–06 (Table 28).
40

Table 28: Health insurance funds reported expenses and revenues, current prices,
2003–04 to 2005–06 ($ million)
Operating expenses and revenue of funds  2003–04 2004–05 2005–06
Expenses
Total cost of benefits
7,525 8,238 8,753
(a )
State levies (patient transport services)  105 110 113
Management expenses  852 892 962
Total expenses (not including provision
adjustments) 8,482 9,240 9,828
Revenue
Contributions income
8,637 9,384 10,261
Other revenue
296 373 446
Total revenue
8,932 9,757 10,706
Operating profit (loss) before abnormals
and extraordinary items
447 626 984
(a)  Includes adjustment to provisions for outstanding claims.
Note:
Components may not add to totals due to rounding.
Sources:
PHIACs, 2004 to 2006.
Table 29: Expenditure on health goods and services and administration funded through
private health insurance funds, constant prices
, and annual growth rates, 1995–96 to 2005–06
(a)
Reimbursement
Gross payments
through reduced
Net payments from
through health
premium fees by
Rebates through
health insurance fund
insurance funds
funds
taxation system
resources
(b)
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  5,933  . .    . . . . . . . . 5,933  . .
1996–97
6,162  3.9    . . . . . . . . 6,162  3.9
1997–98
5,995  –2.7    319 . . 203 . . 5,473  –11.2
1998–99 6,010 0.3  979 206.8 223 10.1 4,808 –12.1
1999–00
6,289 4.6  1,681 71.8 232 3.9 4,376  –9.0
2000–01 7,340 16.7  2,213 31.6 209 –10.0 4,918 12.4
2001–02 8,115 10.6  2,196 –0.8 193 –7.4 5,726 16.4
2002–03 8,385 3.3  2,331 6.2 173 –10.4 5,880 2.7
2003–04 8,671 3.4  2,465 5.7 162 –6.6 6,044 2.8
2004–05 8,865 2.2  2,672 8.4 155 –4.1 6,038 –0.1
2005–06 9,066 2.3   2,888 8.1  156 0.7  6,022 –0.3
Average annual growth rate
1995–96 to 1997–98  0.5    . . . .   –4.0
1997–98 to 2002–03  6.9    48.9 –3.1   1.4
1995–96 to 2005–06  4.3    . . . .   0.1
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Is equal to the gross payments through health insurance funds
less the sum
of the reimbursement through reduced premiums and the
rebates claimed through the taxation system.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
42
 
After the introduction of the Australian Government Private Health Insurance Incentives
Scheme subsidy in 1997 there was a sharp drop in net funding by health insurance funds in
each year up to 1999–00, followed by an increase after the introduction of the lifetime health
cover arrangements in the September quarter of 2000. Net expenditure in real terms rose
from $5,726 million in 2001–02 to $6,044 million in 2003–04. It then dropped to $6,022 million
in 2005–06 which the private health insurance rebates rose to a high of $2,888 million in that
year (Table 29 and Figure 9).
The government rebates for private health insurance are assumed to impact on funding of
health in the year in which the rebates are paid. Thus the build-up in reserves due to the
operating profit of $984 million in 2005–06 (Table 28) is effectively paid for entirely out of
health insurance fund resources and not from government rebates. This is the reason for the
fall in net payments in 2005–06 from health insurance fund resources for health services of
0.3% (Table 29).
In 2005–06, it was estimated that health insurance funds spent on average $684 per person
covered on health (in 2004–05 prices). Fund contributors in South Australia on average
attracted the highest amount per person covered ($772) while people in the Northern
Territory attracted the least per person covered ($367). When comparing average annual
growth rates in constant prices over the period 1996–97 to 2005–06, all states and territories
recorded reductions in the amount spent through health insurance. Fund contributors in the
Northern Territory had the greatest decline in their per person expenditure of 4.9% per year
(Table 30).
Table 30: Average health expenditure funded by health insurance per person
covered, constant
(a)
prices
, by state and territory
, 1996–97 to 2005–06 ($)
(b )
(c )
NSW &
Year
ACT
Vic Qld WA SA Tas NT Australia
( c )
1996–97  1,005 1,030 1,013  952 1,190 1,008  580  1,019
1997–98  921 951 936 888 1,078 903 525  936
1998–99  824 845 846 811 968 800 499  840
1999–00  635 679 672 684 775 646 399  667
2000–01
547 540 579 581 650 614 344  563
2001–02
631 628 685 676 765 707 419  655
2002–03
638 662 722 689 794 725 373  677
2003–04
666 681 751 699 795 753 392  698
2004–05
665 677 748 693 785 723 368  694
2005–06
649 684 733 664 772 729 367  684
Average annual growth rate
1996–97 to 1997–98  –8.4  –7.7  –7.6  –6.8  –9.4  –10.4  –9.4  –8.1
1997–98 to 2002–03  –7.1 –7.0 –5.0 –5.0 –5.9 –4.3 –6.6  –6.3
1996–97 to 2005–06
–4.8 –4.5 –3.5 –3.9 –4.7 –3.5 –4.9  –4.3
(a)  Based on persons registered with health insurance funds in each state and territory.
(b)  Constant price health expenditure for 1996–97 to 2005–06 is expressed in terms of 2004–05 prices.
(c)  Health insurance funding for ACT and NSW residents cannot be reliably separated so are presented as combined.
Source:
AIHW health expenditure database.
43
 
$ millio n
10,000
9,000
Gross funding
8,000
Premium rebate
7,000
6,000
5,000
4,000
Net funding
3,000
2,000
1,000
0
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Note:
Up to 1996–97 there was no government subsidy for health insurance premiums so gross payments through the funds equalled
net payments from health insurance funds’ resources.
Source:
Table 29.
Figure 9: Funding of recurrent health expenditure through private health insurance, constant
prices
, 1995–96 to 2005–06
( a)
People with private health insurance cover typically incur some level of out-of-pocket
expenditure. In 2005–06, the proportion of the total cost of a hospital service (whether it was
a private patient service in a public hospital or a private hospital), that was paid by patients
with hospital cover was highest for those in the younger age groups and lowest for those in
the older age groups (Figure 10). For patients aged 0–14 years the average proportion paid
per person was 14.7% and this dropped to 6.5% for those aged 85 years or more.
The proportion of the total cost of an ancillary service that was paid by patients with
ancillary cover was higher than for hospital services—around half the total cost depending
on the age of the patient (Figure 11). In contrast to the proportion paid for hospital services,
the proportion of the cost of ancillary services increased with the age of the patient.
44
 
For patients aged 0–14 years the average proportion paid per person was 44.5% and this
increased to 59.0% for patients aged 85 years or more.
Hospital cover
100%
90%
80%
70%
60%
Benefits paid
50%
Out of pocket
40%
30%
20%
10%
0%
0–14 15–19 20–44 45–64 65–84 85+
Age
Source:
PHIAC 2007.
Figure 10: Hospital benefits paid and out-of-pocket expenditure, per person with private
health insurance hospital cover, by age group, current prices, 2005–06
Ancillary cove r
100%
90%
80%
70%
60%
Benefits paid
50%
Out of pocket
40%
30%
20%
10%
0%
0–14 15–19 20–44 45–64 65–84 85+
Age
Source:
PHIAC 2007.
Figure 11: Ancillary benefits paid and out-of-pocket expenditure, per person with private
health insurance ancillary cover, by age group, current prices, 2005–06
45
 
In 2005–06 the total cost of a service increased as the age of the patient increased. For
example, the average fee charged for a hospital service to patients with hospital cover was
$142 for a patient aged 0–14 years and $3,691 for a patient aged 85 years or more (Table 31).
At the same time, the proportion of the total cost of a hospital service that was paid by
patients with hospital cover decreased as their age increased—for patients aged 0–14 years
the average proportion paid per person was 14.7% and this decreased to 6.5% for patients
aged 85 years or more (Figure 10). However, because of the increase in hospital service costs
for older patients, the out-of-pocket costs paid by persons aged 45 years or more with
hospital cover were higher than for those aged less than 45 years. For example, average
out-of-pocket costs for hospital services paid by patients with hospital cover were
$21 per person for those aged 0–14 years and $239 for persons aged 85 years or more with
hospital cover (Table 31).
The average out-of-pocket costs paid for hospital services by females aged between 15 and
64 years with private health insurance were higher than those paid by males in the same age
groups with similar types of insurance cover. For the older age groups (65 years or more)
out-of-pocket expenditures paid by males were higher than for females. Out-of-pocket costs
paid by females ranged from $18 per person with insurance in the 0–14 years age group to
$218 for those aged 85 years or more ($23 and $296 per person respectively for males)
(Table 31).
The greatest difference between the sexes in out-of-pocket expenditure on hospital services
for patients with hospital cover was in the age category 20–44 years. Females in this category
spent, on average, more than twice the rate of males ($113 and $50 respectively). This reflects
the higher outlays on hospital services faced by women in their child-bearing years.
The average per person out-of-pocket expenditure for ancillary services paid by female
patients with ancillary cover was higher than that paid by their male counterparts at all ages
except the 85 years and over age group. The difference was greatest in the age category
45–64 years, with an average per person amount paid for an ancillary service by male
patients of $331 and by female patients of $440. The average amount paid for ancillary
services by females with ancillary cover ranged from $118 per person in the 0–14 years age
group to $440 for those aged 45–64 years, after which it decreased to $380 for those aged
85 years or more. For ancillary services for male patients with ancillary cover, out-of pocket
expenditure increased with age, ranging from $103 per person in the 0–14 years age group to
$405 for those aged 85 years or more (Table 31).
46
 
Table 31: Fees charged, benefits paid and out-of-pocket expenditure, per person with private health
insurance hospital cover and/or ancillary cover, by age group and sex, current prices, 2005–06 ($)
Age group
0–14 15–19 20–44  45–64  65–84  85+
Hospital benefits paid, fees charged and out-of pocket expenditure
Males
Out of pocket  23 33 50  109 273  296
Benefits paid  132 154 220  700 2,475  3,748
Fees charged  155 188 270  809 2,748  4,044
Females
Out of pocket  18 36 113  115 211  218
Benefits paid  111 180 623  710 2,121  3,345
Fees charged  129 216 735  825 2,332  3,564
All persons
Out of pocket  21 35 83  112 240  239
Benefits paid  122 167 434  705 2,286  3,452
Fees charged  142 201 517  817 2,526  3,691
Ancillary benefits paid, fees charged and out-of pocket expenditure
Males
Out of pocket  103 155 186  331  396  405
Benefits paid  132 182 191  309  347  286
Fees charged  235 337 377  641  743  691
Females
Out of pocket  118 189 261  440  423  380
Benefits paid  142 215 263  398  376  262
Fees charged  260 405 524  839  799  642
All persons
Out of pocket  110 172 226  387  410  387
Benefits paid  137 198 230  355  362  269
Fees charged  247 370 456  742  772  655
Source:
PHIAC 2007.
Injury compensation insurers
In 2005–06, injury compensation insurers funded $1,935 million of expenditure on health
goods and services—$1,206 million by workers’ compensation insurers and $729 million by
motor vehicle third-party insurers (AIHW health expenditure database).
Over the period 1995–96 to 2005–06, expenditure by workers’ compensation insurers rose on
average by 2.3% per year while the annual increase over this decade was 4.3% for motor
vehicle third-party insurers (Table 32).
Expenditure on health funded by workers’ compensation and motor vehicle third-party
insurers is included in the ‘other non-government’ source of funds category in the main
health expenditure tables.
47
 
Table 32: Expenditure by injury compensation insurers, constant prices
, and annual growth rates,
(a)
1995–96 to 2005–06
Workers’ compensation
Motor vehicle accident
Total injury
insurers
third-party insurers
compensation insurers
Year  Amount ($m) Growth (%)    Amount ($m) Growth (%)   Amount ($m)  Growth (%)
1995–96  911 . .    459 . . 1,370  . .
1996–97
915 0.5   516 12.4 1,431  4.5
1997–98
906 –1.1   495 –4.1 1,401  –2.2
1998–99 977 7.9  575 16.2 1,552 10.8
1999–00
995 1.9   581 1.0 1,576  1.6
2000–01 996 0.1  535 –7.8 1,532 –2.8
2001–02 1,007 1.1  682 27.3 1,689  10.3
2002–03 1,085 7.8  690 1.2 1,776  5.1
2003–04 1,156 6.5  630 –8.8 1,786  0.6
2004–05 1,126 –2.6  706 12.1 1,832  2.6
2005–06 1,148 1.9  697 –1.2 1,845  0.7
Average annual growth rate
1995–96 to 1997–98  –0.3    3.8   1.1
1997–98 to 2002–03  3.7    6.9   4.9
1995–96 to 2005–06  2.3    4.3   3.0
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
48
 
4  Health expenditure and funding, by
area of health expenditure
4.1  Recurrent expenditure on health goods and
services
Recurrent health expenditure in Australia is considered under two broad categories of health
goods and services—institutional services and non-institutional goods and services.
Institutional health expenditure includes:
•
hospitals
•
patient transport services.
Non-institutional health expenditure includes:
•
ambulatory health services, such as those provided by doctors, dentists and other health
practitioners
•
community health services and public health services
•
health goods (medications and aids and appliances) provided to patients in the
community
•
health-related expenditures, such as expenditure on health administration and research.
However, within these two categories of health goods and services there is substantial
overlap. Hospitals are part of institutional health services and medical services are part of
non-institutional health goods and services. In 2005–06, $3,986 million was spent on salaried
medical staff and visiting medical officers, but provided as part of public hospital services
(AIHW 2007a). Likewise, expenditures classified as medical services include medical services
provided to private patients in public and private hospitals.
49
 
Administration
3.1%
Research
Aids and appliances
2.4%
3.5%
Medications
14.3%
Hos pitals
( a )
38.6%
Public health
1.8%
To tal exp enditure: $80,389 million
Community health
and other
(b )
4.9%
Other health
practitioners
Patient transport
3.8% Dental services
services
6.6%
1.8%
Medical services
19.3%
(a)  Includes public hospital services and private hospitals. Public hospital services excludes dental services, community health
services, patient transport services, public health and health research undertaken by the hospital. Can include services
provided off the hospital site such as hospital in the home dialysis or other services. See Box 3 for more details.
(b)   ‘Other’ refers to other non-institutional health services n.e.c.
Source:
Table A3.
Figure 12: Recurrent expenditure on health goods and services, current prices, by broad
area of expenditure, 2005–06
Institutional health services
Hospitals
More money is spent by hospitals, as the largest providers of health services, than other
health providers. In this report hospital expenditure is analysed by two categories:
•
public hospitals
•
private hospitals.
Public hospitals in this report include public psychiatric hospitals, which are public hospitals
that cater almost exclusively for the needs of people with mental illness. In
Health expenditure
Australia
reports prior to the 2005–06 report these hospitals were reported separately.
However, as they comprise a relatively small component of total public hospital expenditure
and the definition of public psychiatric hospitals was inconsistent from state to state, they are
now included as part of total public hospitals.
50
 
Box 3: Public hospital and public hospital services expenditure
For the last three years the AIHW has been collecting expenditure data from the states and territories
in a different format and data from the year 2003–04 onwards are now reported differently.
Expenditure for the following services provided by public hospitals is now, where it is possible to
identify this expenditure, reported separately under their respective categories:
•  community health services
•  public health services
•  dental services (non-admitted)
•  patient transport services
•  health research
The balance of public hospital expenditure, remaining after the above components have been removed
and re-allocated to their own expenditure categories, is referred to as
‘public hospital services’
expenditure.
Not all expenditure on community and public health services, dental and patient transport services
and health research provided in public hospitals can be identified separately. For example, some
expenditure relating to dental programs provided in public hospitals can be identified and
re-allocated to the expenditure category ‘state dental services’ expenditure. But some dental services
provided by hospitals cannot be identified and costed so these expenditures remain as part of ’public
hospital services’. Similarly, many of the community health services that are provided by public
hospitals can be identified and re-allocated to the ‘community health services’ expenditure category.
But some are not able to be identified so remain as part of ‘public hospital services’.
Prior to 2003–04, the AIHW Public Hospitals Establishments (PHE) collection data were used to
derive public hospital expenditure estimates for each state and territory. The PHE data comprises
expenditure on goods and services provided in hospitals, including expenditure on the components of
community and public health services, dental and patient transport services and health research that
are provided in public hospitals. This expenditure is referred to as
‘public hospital’
expenditure.
Impact of this change on comparability of health expenditure data
Comparisons over time of expenditure on public hospitals, public hospital services, community and
public health services and dental and patient transport services can be made for the following time
periods:
1. up to and including 2002–03, and
2. from 2003–04 onwards.
Health expenditure for these areas cannot be compared across 2002–03 and 2003–04, nor can they be
used to compare expenditure relating to a specific year, such as 2005–06, to expenditure, or growth
in expenditure, for the decade 1995–96 to 2005–06.
This change in the way data are collected does not affect the comparability over time of expenditure
data on private hospitals, medical services, other health practitioners, medications and aids and
appliances.
As part of the new expenditure reporting process there was not only the change to supplying
information on ‘public hospital services,’ there was also a change in some states and territories in the
allocation of central costs. So increasingly, head office and other central costs have been allocated to
the functional areas rather than to the ‘administration’ category. This leads to quite significant
increases in expenditures allocated to areas such as ‘public hospital services’ and ‘community health
services’.
51
 
Table 33: Recurrent expenditure by hospitals, constant prices
, by broad type of hospital, and
(a )
annual growth rates, 1995–96 to 2005–06
All hospitals recurrent
Public hospitals
Private hospitals
expenditure
( b)
Year  Amount ($m)  Growth (%)    Amount ($m)  Growth (%)    Amount ($m)  Growth (%)
1995–96  14,881  . .    4,113  . .    18,993  . .
15,848 6.5  4,441 8.0  20,289 6.8
1996–97
16,758 5.7  4,560 2.7  21,318 5.1
1997–98
1998–99  17,384 3.7  4,802 5.3  22,186 4.1
17,693 1.8  4,984 3.8  22,677 2.2
1999–00
2000–01  18,788 6.2  5,360 7.5  24,148 6.5
2001–02  19,083 1.6  5,591 4.3  24,675 2.2
2002–03  20,383 6.8  5,915 5.8  26,298 6.6
2003–04  21,087 3.5  6,177 4.4  27,264 3.7
2004–05  22,193 5.2  6,327 2.4  28,520 4.6
2005–06  23,409 5.5  6,410 1.3  29,819 4.6
Average annual growth rate
1995–96 to 1997–98  6.1      5.3      5.9
1997–98 to 2002–03  4.0      5.3      4.3
1995–96 to 2005–06  4.6      4.5      4.6
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Includes dental services, community health services, patient transport services, public health and health research undertaken by the
hospital. See Box 3 for details on distinction between ‘public hospitals’ and ‘public hospital services’.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
Public hospitals and private hospitals
In real terms hospital expenditure—public (psychiatric and non-psychiatric) and private
hospitals—grew by 4.6% and 4.5% per year, respectively, between 1995–96 and 2005–06
(Table 33).
One important influence on expenditure on hospitals is the Australian Government’s policy
for funding hospital services. In the case of public hospitals, funding is affected by bilateral
agreements between the Australian Government and the various state and territory
governments (the AHCAs). Data from the first AHCA period and the first three years of the
second AHCA period are included in this publication. See Box 4 for the periods of all health
service funding agreements between the Australian Government and the state and territory
governments. Funding for hospitals is also influenced by the Australian Government’s
private health insurance initiatives, as private health insurance provides the bulk of funding
for private hospitals and for private patients in public hospitals.
52
 
Between 1997 and 2000 three major incentives relating to private health insurance were
introduced:
•
in July 1997, the means-tested Private Health Insurance Incentives Scheme (PHIIS)
subsidy
•
in January 1999, a non means-tested 30% rebate on private health insurance premiums,
which replaced the PHIIS subsidy
•
in July 2000, the ‘Lifetime Health Cover’ initiatives to encourage more people to take out
and maintain private insurance cover.
Box 4: Australian Government and state and territory governments’ health funding
agreement periods
First Medicare (Compensation) Agreement: 1984 to 30 June 1988
Second Medicare Agreement: 1 July 1988 to 30 June 1993
Third Medicare Agreement: 1 July 1993 to 30 June 1998
First Australian Health Care Agreement: 1 July 1998 to 30 June 2003
Second Australian Health Care Agreement: 1 July 2003 to 30 June 2008
Changes to ‘Lifetime Health Cover’ were announced in 2006 and these changes are being
implemented progressively from 2007. The Australian Government is also allowing insurers
to offer broader health cover products which expand hospital cover to outpatient and
out-of-hospital services.
From 1997–98 to 2002–03, public hospital expenditure grew at 4.0% per year. Private hospital
expenditure grew at 5.3% per year during the same period (Table 33).
The private hospital share of hospital expenditure increased from 21.7% of hospital
expenditure in 1995–96 to 22.7% in 2001–02, stabilised and then declined to 21.5% in 2005–06
(calculated from Table 33).
53
 
Table 34: Funding of hospitals
, current prices, by broad source of funds, 1995–96 to 2005–06
(a)
(per cent)
Government Non-government
Australian
State/territory
Other non-
Private health
Year
Government
and local Total
government
Total Total
(b)
insurance funds
( b)
1995–96  37.4 35.9 73.3 17.8 9.0 26.7 100.0
35.6 38.1 73.7 17.5 8.8 26.3 100.0
1996–97
38.2 38.2 76.4 14.7 8.9 23.6 100.0
1997–98
1998–99  41.9 36.0 77.9 12.3 9.8 22.1 100.0
43.8 35.8 79.6 10.5 9.9 20.4 100.0
1999–00
2000–01  45.0 34.9 79.8 10.9 9.3 20.2 100.0
2001–02  44.0 35.0 79.0 12.4 8.6 21.0 100.0
2002–03  43.5 37.5 81.1 12.0 6.9 18.9 100.0
2003–04  42.6 38.0 80.6 12.1 7.2 19.4 100.0
2004–05  42.3 38.4 80.7 11.7 7.5 19.3 100.0
2005–06  40.6 40.5 81.1   11.1 7.8 18.9 100.0
(a)  Includes dental services, community health services, patient transport services, public health and health research undertaken by public
hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.
Source:
AIHW health expenditure database.
In 2005–06, government accounted for the majority of funding for hospitals (81.1%)
(Table 34). Non-government sources contributed the remainder of the funding (18.9%).
Over the decade to 2005–06, governments increased their share of funding of hospitals
by 7.8 percentage points (Table 34). The Australian Government increased its share by
3.2 percentage points from 37.4% to 40.6%. The states and territories increased their share by
4.6 percentage points from 35.9% to 40.5% and the non-government funding of public and
private hospitals decreased from 26.7% in 1995-96 to 18.9% in 2005-06 (Table 34).
Of this 7.8 percentage point increase in the share of government funding over the decade,
5.6 percentage points was the effect of the Australian Government private health insurance
rebate scheme taking over some of the funding of private health insurance.
Public hospitals
Expenditure on public psychiatric and non-psychiatric hospitals includes expenditure on
dental services, community health services, patient transport services, public health and
health research undertaken in a public hospital, in addition to expenditure on general
hospital treatment provided by public hospitals (see also Box 3).
It does not include the expenditure by public hospitals on services provided by private
hospitals for public patients. This expenditure is included as part of private hospital
expenditure.
More than 90% of funding for public hospitals comes from governments. The Australian
Government’s contribution—estimated at 41.4% in 2005–06 (Table 35)—was largely in the
form of SPPs under the AHCAs (Table 36). The states and territories, which have the major
responsibility for operating and regulating public hospitals that operate within their
jurisdictions, provided 50.6% of the funding for public hospitals in 2005–06.
54
 
Between 1995–96 and 2005–06, the Australian Government share of public hospital funding
decreased by 4 percentage points from 45% to 41%. State and territory government funding
during this period increased by 5 percentage points from, 46% to 51% (Table 35).
The non-government contribution declined over the decade from 9.0% in 1995–96 to 8.0% in
2005–06 (Table 35). In 2005–06, non-government funding consists of funding from private
health insurance (1.7%), individual out-of-pocket payments (1.1%), workers’ compensation
insurers and motor vehicle third-party insurers (1.1%) and other revenue (4.1%) (calculated
from source table for Table 35).
Table 35: Funding of public hospitals
, current prices, by broad source of funds, 1995–96 to
(a)
2005–06
Government
Australian Government  State/territory   Non-government Total
Amount
Share
Amount
Share
Amount
Share
Amount
Share
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  5,203 45.2 5,274 45.8 1,041 9.0 11,518 100.0
5,332 42.7 6,080 48.7 1,068 8.6 12,480 100.0
1996–97
5,905 43.9 6,543 48.6 1,004 7.5 13,453 100.0
1997–98
1998–99  6,657 46.4 6,589 45.9 1,093 7.6 14,339 100.0
6,979 46.8 6,847 45.9 1,099 7.4 14,925 100.0
1999–00
2000–01  7,497 47.3 7,100 44.8 1,249 7.9 15,846 100.0
2001–02  7,986 46.5 7,769 45.3 1,408 8.2 17,163 100.0
2002–03  8,700 45.9 8,894 46.9 1,367 7.2 18,961 100.0
2003–04
9,063 44.6 9,779 48.1 1,490 7.3 20,332 100.0
( b)
2004–05
9,735 43.9 10,731 48.4 1,726 7.8 22,193  100.0
( b)
2005–06
10,105 41.4 12,361 50.6 1,943 8.0 24,409  100.0
( b)
(a)  Includes dental services, community health services, patient transport services, public health and health research undertaken by public
hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Public hospital expenditure estimates for 2003–04 to 2005–06 are derived from Public Hospital Establishments data published in
Australian
Hospital Statistics.
Source:
AIHW health expenditure database.
55
 
Table 36: Government shares of recurrent expenditure on public hospitals
, by level of
(a)
government, current prices, 1995–96 to 2005–06 (per cent)
Australian Government
Rebates of
Other
health
Australian
State/territory
Total
insurance
Year  DVA  AHCA
Government
Total
governments
government
( b)
premiums
1995–96  4.0 41.2  . .  — 45.2  45.8  91.0
1996–97  3.6 38.8  . .  0.4 42.7  48.7  91.4
1997–98
3.0 37.2  0.2  3.4 43.9  48.6  92.5
1998–99
3.5 39.5  0.4  3.0 46.4  45.9  92.4
1999–00
3.4 39.7  0.6  3.1 46.8  45.9  92.6
2000–01  3.3 39.8  0.7  3.5 47.3  44.8  92.1
2001–02  3.5 38.8  0.7  3.6 46.5  45.3  91.8
2002–03  3.7 38.2  0.7  3.4 45.9  46.9  92.8
2003–04  3.7 36.9  0.7  3.3 44.6  48.1  92.7
2004–05  3.7 35.7  0.8  3.7 43.9  48.4  92.2
2005–06  2.8 34.1  0.8  3.7 41.4  50.6  92.0
(a)  Includes dental services, community health services, patient transport services, public health and health research undertaken by public
hospitals. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)   Includes DoHA direct expenditure on public hospitals, such as for blood sector payments and SPPs, excluding AHCAs, for public hospitals,
for example, for highly specialised drugs, hepatitis C funding, Health program and Positron emission tomography (PET) Scanner grants.
Note:
Lines separate the table according to Australian Health Care Agreement periods (see Box 4).
Source:
AIHW health expenditure database.
The share of funding for public (psychiatric and non-psychiatric) hospitals met by the two
major levels of government—Australian, and state and territory—fluctuates from year to
year. In the last 20 years a common pattern observed over time has seen the Australian
Government share of funding higher in the earlier years of the five-year health agreements
(see Box 4) and lower towards the end of the period—with state and territory governments
share of funding the reverse (Table 36). From the last year of the previous AHCAs to the first
year of the current AHCAs the Australian Government share funded through the AHCAs
fell—by 1.3 percentage points from 38.2% to 36.9%. Then it fell a further 2.8 percentage
points to 34.1% in the 2 years to 2005–06. There was a corresponding increase in the share
provided by the state and territory governments of 1.2 percentage points from 46.9% to
48.1% (from the last year of the previous AHCAs to the first year of the current AHCAs) and
then an increase of 2.5 percentage points to 50.6% in the 2 years to 2005–06 (Table 36).
56
 
Table 37: Recurrent funding of public hospitals
, constant prices
, by source of funds, and annual
(a )
(b )
growth rates, 1995–96 to 2005–06
Government
Australian
Total recurrent
State/territory  Total Non-government
Government
funding
( c )
( c )
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  6,723  . .  6,813  . . 13,536 . . 1,344 . .  14,881  . .
1996–97
6,766 0.6 7,724 13.4 14,489 7.0 1,359 1.0 15,848  6.5
1997–98
7,354 8.7 8,152  5.5 15,506 7.0 1,252 –7.9 16,758  5.7
1998–99  8,072 9.8 7,986 –2.0 16,057 3.6 1,327 6.0 17,384  3.7
1999–00
8,274 2.5 8,115  1.6 16,389 2.1 1,304 –1.7 17,693  1.8
2000–01  8,889 7.4 8,417  3.7 17,306 5.6 1,482 13.6 18,788  6.2
2001–02  8,878 –0.1  8,638  2.6 17,516 1.2 1,567 5.8 19,083  1.6
2002–03  9,351 5.3 9,562 10.7 18,913 8.0 1,470 –6.2 20,383  6.8
2003–04  9,399 0.5 10,143  6.1 19,541 3.3 1,545 5.2 21,087  3.5
2004–05  9,735 3.6 10,731  5.8 20,466 4.7 1,726 11.7 22,193  5.2
2005–06  9,691 –0.5 11,854 10.5 21,545 5.3   1,864 7.9 23,409  5.5
Average annual growth rate
1995–96 to
1997–98  4.6   9.4 7.0 –3.5    6.1
1997–98 to
2002–03 4.9  3.2 4.1 3.3  4.0
1995–96 to
2005–06  3.7   5.7 4.8 3.3    4.6
(a)  Includes dental services, community health services, patient transport services, public health and health research undertaken by the
hospital. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(c)  Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
57
 
14,000
State/territory & local governments
12,000
10,000
Australian Government
8,000
Australian Government AHCA
6,000
4,000
Non-government
2,000
0
(a)   Includes dental services, community health services, patient transport services, public health and health research
undertaken by the hospital.
See Box 3 for details on distinction between public hospitals and public hospital services.
(b)    Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Sources:
Table 37 and AIHW health expenditure database.
Figure 13: Funding of public hospitals
, constant prices
, by broad source of funds,
(a)
(b )
1995–96 to 2005–06
Public hospital services
Expenditure on public hospital services differs from expenditure on public hospitals (see
Public hospital section above and Box 3). Expenditure on public hospital services comprises
expenditure on services provided to a patient who is treated in either a public psychiatric or
non-psychiatric hospital, but
excludes
expenditure on dental services, community health
services, patient transport services, public health and health research undertaken by the
hospital.
It does not include the funding by public hospitals of the contracted care provided by private
hospitals for public patients. This expenditure is reported as part of private hospital
expenditure.
58
 
Table 38: Funding of public hospital services
, Australia, current prices, by source of funds,
(a )(b )
2003–04 to 2005–06
Australian Government
Other
State/
Rebates of
Australian
territory
health
Non-
Govern-
govern-
insurance
govern-
Year  DVA AHCA
ment
Total
ments
( c )
premiums
ment Total
Amount ($ million)
2003–04 743 7,500  147  673 9,063 10,099  1,275  20,437
2004–05  814 7,919  180  823  9,735  10,896  1,460  22,091
2005–06  685 8,321  207  893  10,105  12,374  1,840  24,319
Proportion (%)
2003–04 3.6 36.7  0.7 3.3 44.3 49.4 6.2 100.0
2004–05  3.7 35.8  0.8 3.7 44.1 49.3 6.6 100.0
2005–06  2.8 34.2  0.8 3.7 41.6 50.9 7.6 100.0
(a)  Public hospital services excludes dental services, community health services, patient transport services, public health and health
research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or
other services. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this
is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).
(c)  Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital
services which are not AHCAs, for example for highly specialised drugs, hepatitis C funding, Health Program and PET Scanner
grants.
Source:
AIHW health expenditure database.
59
 
Table 39: Funding of public hospital services
, states and territories, current prices, by source
(a )(b )
of funds, 2003–04 to 2005–06 ($ million)
Australian Government
Other
State/
Rebates of
Australian
territory
health
Non-
Govern-
govern-
insurance
govern-
DVA AHCA
ment
Total
ments
( c )
( d)
premiums
ment Total
NSW
2003–04 289 2,538  79 236 3,141 3,943 596 7,680
2004–05 326 2,651  96 288 3,361 4,288 668 8,317
2005–06 307 2,796 109 312 3,524 4,549 826 8,899
Vic
2003–04 196 1,816  30 173 2,216 2,438 405 5,059
2004–05 221 1,918  40 218 2,396 2,617 479 5,493
2005–06 163 1,999  49 221 2,432 2,936 558 5,926
Qld
2003–04 64 1,421 13 111 1,609 1,526 70 3,204
2004–05 80 1,515 15 139 1,749 1,536 61 3,346
2005–06 52 1,615  14 147 1,828 2,062 141 4,032
WA
2003–04 97 731  9 63 900 895 70 1,865
2004–05 86 792 11 70 960 986 106 2,052
2005–06 58 817 14 73 963 1,141 140 2,244
SA
2003–04 71 634 12 53 771 740 57 1,568
2004–05 75 663 14 62 814 857 61 1,732
2005–06 79 698 15 68 860 961 66 1,887
Tas
2003–04 15 168 3.3 18 205 152 31 389
2004–05 15 178 4.2 23 220 175 29 425
2005–06 14 185 4.9 26 230 225 35 489
ACT
2003–04 10 99 — 12 120 199 39 359
2004–05 10 104 — 14 128 214 52 395
2005–06 11 107 — 15 133 261 60 454
NT
2003–04 0.9 93 0.3 8 102 207 6 314
2004–05 — 98 0.4 9 106 221 5 332
2005–06 —  104  0.4
30 134 239  15 387
(e )
(a)  Public hospital services excludes dental services, community health services, patient transport services, public health and health
research undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or other
services. See Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this
is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).
(c)  Excludes palliative care in 2004–05 ($36 million). There is a difference of up to $2 million for NSW, Vic, QLD and WA in 2003–04 due
to a difference in the amount reported in the 2003–04 Department of Health and Ageing Annual Report (DoHA 2004) and the SPPs
in the 2003–04 Treasury Final Budget Outcome (Treasury 2004).
(d)  Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital services
which are not AHCAs, for example for highly specialised drugs, hepatitis C funding, Health Program and PET Scanner grants.
(e)  Includes a $21 million SPP for Royal Darwin Hospital.
Source:
AIHW health expenditure database.
60
 
Table 40: Funding of public hospital services
, states and territories, current prices, by source
(a )(b )
of funds, 2003–04 to 2005–06 (per cent)
Australian Government
Other
State/
Rebates of
Australian
territory
health
Non-
Govern-
govern-
insurance
govern-
DVA AHCA
ment
Total
ments
( c )
( d)
premiums
ment Total
NSW
2003–04 3.8 33.0 1.0 3.1 40.9 51.3 7.8  100.0
2004–05 3.9 31.9 1.2 3.5 40.4 51.6 8.0  100.0
2005–06 3.5 31.4 1.2 3.5 39.6 51.1 9.3  100.0
Vic
2003–04 3.9 35.9 0.6 3.4 43.8 48.2 8.0  100.0
2004–05 4.0 34.9 0.7 4.0 43.6 47.7 8.7  100.0
2005–06 2.7 33.7 0.8 3.7 41.0 49.5 9.4  100.0
Qld
2003–04 2.0 44.3 0.4 3.5 50.2 47.6 2.2  100.0
2004–05 2.4 45.3 0.4 4.2 52.3 45.9 1.8  100.0
2005–06 1.3 40.1 0.4 3.6 45.3 51.1 3.5  100.0
WA
2003–04 5.2 39.2 0.5 3.4 48.3 48.0 3.8  100.0
2004–05 4.2 38.6 0.5 3.4 46.8 48.1 5.1  100.0
2005–06 2.6 36.4 0.6 3.3 42.9 50.9 6.3  100.0
SA
2003–04 4.5 40.5 0.8 3.4 49.2 47.2 3.6  100.0
2004–05 4.4 38.3 0.8 3.6 47.0 49.5 3.5  100.0
2005–06 4.2 37.0 0.8 3.6 45.6 50.9 3.5  100.0
Tas
2003–04 4.0 43.3 0.9 4.6 52.8 39.2 8.1  100.0
2004–05 3.5 41.8 1.0 5.4 51.8 41.3 6.9  100.0
2005–06 2.9 37.9 1.0 5.3 47.0 45.9 7.1  100.0
ACT
2003–04 2.7  27.6  —  3.2 33.5  55.6  10.9  100.0
2004–05 2.6  26.4  —  3.6 32.5  54.2  13.2  100.0
2005–06 2.4  23.6  —  3.4 29.4  57.5  13.2  100.0
NT
2003–04 0.3 29.5 0.1 2.6 32.4 65.8 1.8  100.0
2004–05 — 29.3 0.1 2.6 32.0 66.6 1.4  100.0
2005–06 —  26.8  0.1
7.7 34.6  61.7  3.8  100.0
( e )
(a)  Public hospital services excludes dental services, community health services, patient transport services, public health and health research
undertaken by the hospital. Can include services provided off the hospital site such as hospital in the home dialysis or other services. See
Box 3 for details on distinction between public hospitals and public hospital services.
(b)  Public hospital services expenditure does not include expenditure on public patients who are contracted with private hospitals as this
is part of private hospital expenditure. In 2005–06, this expenditure was $244 million (Table A3).
(c)  Excludes palliative care in 2004–05 ($36 million). There is a difference of up to $2 million for NSW, Vic, QLD and WA in 2003–04 due to a
difference in the amount reported in the 2003–04 Department of Health and Ageing Annual Report (DoHA 2004) and the SPPs in the
2003–04 Treasury Final Budget Outcome (Treasury 2004).
(d)  Includes DoHA direct expenditure on public hospital services, such as for blood sector payments and SPPs for public hospital services
which are not AHCAs, for example for highly specialised drugs, Hepatitis C funding, Health Program and PET Scanner grants.
(e)  Includes a $21 million SPP for Royal Darwin Hospital.
Source:
AIHW health expenditure database.
61
 
In 2005–06, the Australian Government provided 41.6% ($10,105 million) of the funding for
public hospital services, a 2.7 percentage points’ decrease in funding from 2003–04. The
Australian Government AHCA funding in 2005–06 was 34.2% of funding for public hospital
services which was a 2.5 percentage point decrease since 2003–04 (Table 38). In comparison,
state and territory governments contributed 50.9% ($12,374 million) of funding in 2005–06,
an increase of 1.5 percentage points since 2003–04.
Non-government funding of public hospital services comprised 7.6% of total funding for
public hospitals in 2005–06 ($1,840 million), which was an increase of 1.4 percentage points
since 2003–04.
Private hospitals
Total expenditure on private hospitals in 2005–06 was estimated at $6,683 million (Figure 14).
Two-thirds (68.8%) of this came via private health insurance funds. This comprised 45.7%
out of the premiums paid by contributors and other revenues flowing to the funds, and the
remaining 23.1% being indirectly funded out of the 30% rebates paid by the Australian
Government in respect of contributors’ premiums. In 2005–06 those rebates, in total,
amounted to $3.2 billion, and $1.5 billion of that is estimated to have been used in the
funding of private hospitals (Table 27).
Other non-
government
(a )
8.9% DV A
Individuals
12.5%
4.2%
Health insurance
premium rebate
23.1%
T otal fund ing: $6,683 million
Other Australian
Government
Private health
1.9%
insurance funds
45.7%
State/territory and
local governments
3.7%
(a)  Includes funding by injury compensation insurers.
Source:
Table A3.
Figure 14: Funding of private hospitals, current prices, by broad source of funds, 2005–06
62
 
Patient transport services
Patient transport services provide transport to and from health care facilities for patients
receiving outpatient or admitted patient treatment. Expenditure for these services includes
patient transport expenses that are provided by public hospitals (see Box 3 for more detail).
Total estimated expenditure on patient transport services in 2005–06 was $1,439 million
(Table A3). In real terms, estimated expenditure increased by an average of 1.3% per year
between 2003–04 and 2005–06 (calculated from the source for Table 20). In 2005–06 the
proportion of patient transport expenditure that was funded by the Australian Government
was 11.5%. State and territory and local governments provided 62.5% of the funding for
patient transport services and non–government sources provided the remaining 26.0%
(calculated from Table A3).
Non-institutional health goods and services
Medical services
Between 1995–96 and 2005–06, expenditure on medical services increased, in real terms, at an
average of 2.6% per year (Table 41).
Almost all expenditure on medical services in Australia relates to services that are provided
by practitioners on a ‘fee-for-service’ basis. This is reflected in the distribution of funding for
medical services. Of the $15.5 billion spent on medical services in 2005–06, 79.0%
($12.2 billion) was funded by the Australian Government (Figure 15). This was made up
almost exclusively of medical benefits paid under Medicare, with some funding from the
DVA for medical services to eligible veterans and their dependants, as well as payments to
general practitioners under alternative funding arrangements. Of the remaining expenditure,
11.3% was funded by individuals, 4.1% was from health insurance funds and 5.7% was other
non-government funding (Figure 15).
Medical services out-of-pocket expenditure increased by 7.6% ($123 million) in 2005-06
(Tables A2 and A3). Real growth in expenditure by individuals between 1995–96 and
2005–06 was 6.0% per year, 0.9 percentage points above the real growth in health
expenditure (5.1%) (Tables 1 and 25).
63
 
Other non-
government
(a )
5.7%
Individuals
11.3%
Health insurance funds
4.1%
To tal exp enditure: $15,499 million
Australian Government
79.0%
(a)  Includes funding by injury compensation insurers.
Source:
Table A3.
Figure 15: Recurrent expenditure on medical services, current prices, by source of funds,
2005–06
Between 1995–96 and 2005–06, the Australian Government’s real expenditure on medical
services grew by 2.2%, while expenditure by individuals rose by 4.2% and that of health
insurance funds rose by 6.5% (Table 41).
From 1999–00, with the introduction of the ‘Lifetime Health Cover’ incentives and other
measures which increased insurance coverage, real growth in funding by the health
insurance funds accelerated sharply until 2003–04 when the growth rate decreased to
6.5% from 11.6% in the previous year. In 2004–05 real funding by health insurance funds
declined by 0.2%, but in 2005–06 growth was 1.9% (Table 41).
64
 
Table 41: Recurrent funding of medical services, constant prices
, by source of funds, and annual
( a)
growth rates, 1995–96 to 2005–06
Injury
Australian
Health insurance
compensation
Total recurrent
Government
funds
Individuals
insurers
funding
( b)
(b )
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  9,361  . .    322  . . 1,091 . . 569 . .    11,342  . .
9,510  1.6   324  0.6 1,160 6.3 620 9.0   11,614  2.4
1996–97
9,714  2.1   292  –9.8 1,262 8.8 619 –0.1   11,887  2.4
1997–98
1998–99  10,026  3.2   274  –6.0 1,318 4.4 651 5.1   12,268  3.2
10,527  5.0   286  4.1 1,320 0.2 683 5.0   12,816  4.5
1999–00
2000–01  10,524  —   361  26.4 1,365 3.4 657 –3.8   12,907  0.7
2001–02  10,714  1.8   498  38.0 1,431 4.8 754 14.8   13,397  3.8
2002–03  10,657  –0.5   556  11.6 1,616 13.0 793 5.1   13,622  1.7
2003–04  10,738  0.8   592  6.5 1,724 6.7 850 7.2   13,904  2.1
2004–05  11,589  7.9   591  –0.2 1,622 –5.9 844 –0.8   14,646  5.3
2005–06  11,590  —    602  1.9   1,653 1.9   832 –1.4    14,677  0.2
Average annual growth rate
1995–96 to 1997–98  1.9      –4.7 7.5 4.3      2.4
1997–98 to 2002–03  1.9      13.8 5.1 5.1      2.8
1995–96 to 2005–06  2.2      6.5 4.2 3.9      2.6
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  Funding by the Australian Government and private health insurance funds has been adjusted for the private health insurance rebate.
Note:
Components may not add due to rounding.
Source:
AIHW health expenditure database.
Bulk-billing influences the relative shares of funding by the Australian Government and
individuals, because services that are bulk-billed do not attract any co-payment by
individuals. The trends in the bulk-billing rate parallel trends in the proportion of medical
services expenditure funded by individuals. So, the peak for individuals’ payments in
2003–04 of 12.4% of medical services expenditure also represented the lowest bulk-billing
rate in this period (Table 42).
In 1995–96, 71.1% of all medical services were bulk-billed. Bulk-billing rates continued to
increase up to 1999–00 when rates peaked at 72.3% (Table 42). After this year, the overall
bulk-billing rate declined to 2003–04, when 67.5% of all medical services were bulk-billed.
Since then the rate has increased to 71.7% in 2005–06 (an increase of 0.6 percentage points
since 1995-96)—a similar proportion to the levels of services that were bulk-billed in 1996–97.
The increase in the Australian Government proportion in 2004–05 and the decrease in the
individual proportion reflects a number of factors including the Strengthening Medicare
program which, from 1 January 2005, increased the benefit paid for general practitioner
services from 85% to 100% of the schedule fee.
65
 
Table 42: Shares of recurrent funding for medical services, current prices, and proportion of
medical services bulk-billed, 1995–96 to 2005–06 (per cent)
Non-government
Health
Australian
insurance
Bulk-billing
Year
Government
funds  Individuals
Other
Total Total
rate
( a)
( b)
( b)
1995–96  82.5 2.8  9.6 5.0 17.5 100.0 71.1
1996–97
81.9 2.8 10.0 5.3 18.1 100.0 71.8
1997–98
81.7 2.5 10.6 5.2 18.3 100.0 71.8
1998–99  81.7 2.2 10.7 5.3 18.3 100.0 72.0
82.1 2.2 10.3 5.3 17.9 100.0 72.3
1999–00
2000–01  81.5 2.8 10.6 5.1 18.5 100.0 71.4
2001–02  80.0 3.7 10.7 5.6 20.0 100.0 70.4
2002–03  78.2 4.1 11.9 5.8 21.8 100.0 67.8
2003–04  77.2 4.3 12.4 6.1 22.8 100.0 67.5
2004–05  79.1 4.0 11.1 5.8 20.9 100.0 70.2
2005–06  79.0 4.1 11.3 5.7 21.0 100.0 71.7
(a)  Includes funding by injury compensation insurers.
(b)  Bulk-billing rate for all services covered under Medicare, which is almost entirely medical services, but also includes optometrical and
other selected allied health and dental services.
Source:
AIHW health expenditure database.
Other health practitioners
Of the $3.0 billion spent on other health practitioners in 2005–06, over half of the expenditure
was funded by individual users of services (54.5% in 2005–06) (calculated from Table A3).
Of the remaining $1.4 billion, $578 million (41.8%) was funded by private health insurance
and Australian Government health insurance rebates.
In real terms, expenditure on other health practitioners rose at an average of 3.1% per year
between 2003–04 to 2005–06 (Table A8), 0.7 percentage points lower than the growth in
recurrent health expenditure (3.8%) over that period.
Medications
Medications comprise benefit-paid pharmaceuticals and other medications (pharmaceuticals
and other medicines) for which no PBS or RPBS benefit was paid. Other medications include
private and under co-payment prescriptions, and over-the-counter medicines such as
pharmacy-only medicines, pain-killers, cough and cold medicines, vitamins and minerals,
and a range of medical non-durables, such as bandages, bandaids and condoms. For more
information see Table 65 and the Glossary.
In real terms, total expenditure on medications increased by 8.6% per year from 1995–96 to
2005–06, to reach $11.4 billion in 2005–06 (Table 20). While total medication expenditure
experienced fairly consistent growth in most years between 1995–96 and 2004-05,
expenditure on benefit-paid pharmaceuticals and other medications fluctuated much more
from year to year (Table A8). This is partly due to the effects of the co-payment in
determining what items attract benefits. The benefit-paid pharmaceuticals category includes
only those items listed under the Schedule of Pharmaceutical Benefits for which benefits
66
 
were actually paid. Items that are listed on the PBS but have a price below the statutory
patient co-payment are recorded in the ‘other medications’ category, so when the
co-payment is high there is more expenditure recorded in the ‘other medications’ category.
Benefit-paid pharmaceuticals
In real terms, recurrent expenditure on benefit-paid pharmaceuticals grew at an average of
9.1% per year from 1995–96 to 2005–06 compared to growth in total recurrent health
expenditure of 4.8% (Tables 43 and A8). The period of most rapid growth was from 1997–98
to 2002–03, when growth averaged 12.4% per year—which was shared between the
Australian Government (12.9% per year) and individuals’ (9.6% per year).
In 2005–06, the total amount spent on pharmaceuticals for which benefits were paid was
$7,286 million in current prices (Figure 16). This was a growth in real terms of 2.7% from the
previous year (Table 43). Benefits paid by the Australian Government for PBS and RPBS
items accounted for 80.6% of this expenditure and 16.1% was due to patient contributions for
PBS and RPBS items. The balance (3.3%) was due to Section 100 drugs (excluding highly
specialised drugs which are included in hospital expenditure) and other Australian
Government Department of Health and Ageing (DoHA) administered expense items.
Section 100 drugs
(excluding highly
Other
( a )
specialised drugs)
Patient contribution
0.3%
3.0%
for PBS and RPBS
items
16.1%
To tal exp enditure: $7,286 m illion
Australian
Government benefits
paid for PBS and
RPBS ite ms
80.6%
(a)
‘Other’ refers to other DoHA administered expense items.
Source:
AIHW health expenditure database.
Figure 16: Recurrent expenditure on bene fit-paid pharmaceuticals, current prices, 2005–06
67
 
Table 43: Recurrent expenditure on benefit-paid pharmaceuticals, constant prices
, by source of
(a )
funds, and annual growth rates, 1995–96 to 2005–06
Australian
Total recurrent
Government Individuals
expenditure
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  2,548 . . 502 . . 3,049  . .
2,760 8.3 558 11.2 3,318 8.8
1996–97
2,820 2.2 601 7.8 3,421 3.1
1997–98
1998–99  3,108 10.2 631 4.9 3,739 9.3
3,541 13.9 684 8.4 4,225 13.0
1999–00
2000–01  4,333 22.4 778 13.8 5,111 21.0
2001–02  4,687 8.2 843 8.4 5,531 8.2
2002–03  5,176 10.4 952 12.9 6,129 10.8
2003–04  5,672 9.6 1,037 8.9 6,709 9.5
2004–05  5,930 4.6 1,151 10.9 7,081 5.5
2005–06  6,034 1.7  1,237 7.5  7,271  2.7
Average annual growth rate
1995–96 to 1997–98  5.2 9.5   5.9
1997–98 to 2002–03  12.9 9.6   12.4
1995–96 to 2005–06  9.0 9.4   9.1
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
All other medications
In real terms, recurrent expenditure on other medication items (see Table 65 for definition)
grew by an average of 7.7% between 1995–96 and 2005–06 (Table 44). Expenditure by the
Australian Government from 1997–98 in this category includes a proportion of the private
health insurance rebate allocated to pharmaceuticals.
The main source of funding for other medication items was individuals’ out-of-pocket
expenditure. The most rapid period of growth for individual out-of-pocket expenditure
(19.6%) was from 1995–96 to 1997–98 (Table 44).
68
 
Table 44: Recurrent expenditure of other medications, constant prices
, by source of funds, and
( a)
annual growth rates, 1995–96 to 2005–06
State/territory
Australian
and local
Health insurance
Individuals and
Total recurrent
Government
governments
funds
other non-govt
funding
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  —  . .    13  . . 52 . . 1,881 . .    1,946  . .
—  . .   13  2.1 52 0.3 2,108 12.1   2,173  11.7
1996–97
4  . .   19  44.4 36 –31.3 2,464 16.9   2,522  16.1
1997–98
1998–99  8  126.0   —  . . 33 –7.9 2,689 9.1   2,731  8.3
15  84.0   —  . . 34 3.8 2,953 9.8   3,003  10.0
1999–00
2000–01  89  489.1   —  . . 39 14.5 3,207 8.6   3,335  11.1
2001–02  57  –35.5   2  . . 49 24.6 3,731 16.3   3,839  15.1
2002–03  63  10.1   —  . . 56 14.2 3,428 –8.1   3,547  –7.6
2003–04  77  22.7   —  . . 51 –8.4 3,589 4.7   3,717  4.8
56.5   —  . . 51 –0.2 3,913 9.0   4,085  9.9
( b )
2004–05  121
2005–06  69  –43.0     —  . .   45 –11.0   3,965 1.3     4,079  –0.2
Average annual growth rate
1995–96 to 1997–98  . .      21.4 –20.3 19.6      13.9
1997–98 to 2002–03  77.0      . . 9.2 5.9      7.1
1995–96 to 2005–06  . .      . . –1.3 7.7      7.7
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
(b)  The large increase was due to pharmacy restructuring grants in this year.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
In 2005–06, expenditure on all other medication items was $4,216 million. Over-the-counter
medicines accounted for the largest share of this expenditure at 70.3%. Private prescriptions
accounted for 12.5%, under co-payment prescriptions for 14.6% and the remainder (2.6%)
comprised funding from injury compensation insurers and other DoHA administered
expense items (Figure 17).
69
 
Other
( a )
Private
2.6%
prescriptions
12.5%
Under co-payment
prescriptions
14.6%
Total e xpe nditu re : $4,216 millio n
Over-the-counter
medications
70.3%
(a)       Includes injury compensation insurers’ payments and some DoHA administered expense items.
Sources:
DoHA 2006, Pharmacy Guild of Australia unpublished data, Flanagan 2006, Synovate AZTEC unpublished
data and AIHW health expenditure database.
Figure 17: All other me dications expenditure, by category, current prices, 2005–06
Pharmaceutical expenditure in the community and hospitals
In 2005–06, estimated expenditure on pharmaceuticals (excluding complementary and
alternative medications, and over-the-counter medications for which a prescription was not
required) was $10,551 million (Table 45). The majority of this expenditure was for
benefit-paid pharmaceuticals (69.1% or $7,286 million), most of which was funded by the
Australian Government (83.0%). Individuals’ out-of-pocket expenses accounted for the
remaining 17.0% of benefit-paid pharmaceuticals. Expenditure on in-hospital drugs
comprised $1,658 million spent on drugs by public hospitals and $356 million spent by
private hospitals. This total ($10,551 million) does not include expenditures incurred by the
Australian Government and state and territory governments in purchasing and
administering vaccines under various state, territory and national public health programs.
70
 
Table 45: Expenditure on pharmaceuticals for which a script is required, dispensed in the
community and by hospitals
, current prices, 2005–06 ($ million)
(a )
All other
pharmaceuticals
Benefit-paid
Total
Non-
Provider and funder
pharmaceuticals
pharmaceuticals
hospital
Hospital
( b)
( c )
Community pharmacies
Funded by
Australian Government DVA  468 . . . .  468
Australian Government DoHA
( d )( e )
5,578 71  . .  5,649
Health insurance funds  . .  47  . .  47
Individuals  1,240 1,072  . .  2,312
Injury compensation insurers and
other  . .  62  . .  62
Total pharmacies  7,286 1,252  . .  8,537
Public hospitals
(f )
. .  . .  1,658  1,658
Private hospitals
( g)
. .  . .  356  356
Total  7,286 1,252 2,014  10,551
(a)  Excludes complementary and alternative medicines and over-the-counter medicines for which a prescription is not required.
(b)  Includes private prescriptions and under co-payment prescriptions.
(c)  Does not include the costs of paying hospital staff to dispense these pharmaceuticals. Dispensary costs are, however,
included in the first two columns of this table.
(d)  Does not include $529 million in payments for highly specialised drugs, which are included in the public hospitals and
private hospitals rows.
(e)  Includes $232 million in Section 100 payments for human growth hormones, In-vitro fertilisation (IVF) and other subsidised
pharmaceuticals.
(f)  Includes $422 million in Australian Government payments to states and territories for highly specialised drugs.
(g)  Includes $107 million in Australian Government payments for highly specialised drugs.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
Expenditure on benefit-paid items under the PBS and RPBS represented almost
three-quarters (69.1%) of the total expenditure on pharmaceuticals for which a prescription
was required (Table 45). Expenditure on benefit-paid items has two components—the cost to
government and co-payments by users.
The cost to government under the PBS (not including expenditure under the RPBS) in
2004–05 was estimated at $5,296 million (Table 46). In 2005–06, it increased to $5,384 million.
The relative funding shares of the PBS (that were met by the Australian Government through
benefits and by individuals through their co-payments) changed little until 1 January 2005,
when co-payments by general patients increased from $23.70 per prescription to $28.60 and
by concessional patients from $3.80 to $4.60. From 1 January 2006, co-payments increased
again to $29.50 and $4.70 respectively.
There have also been some changes over time in the proportion of total patient contribution
paid by general and concessional patients and funding under the safety net arrangements. In
2001–02, concessional patients contributed $362 million or 44.9% of total patient
contributions. By 2005–06 their proportion of the total contribution had dropped to
43.5% ($489 million). During the same period contributions provided by the Australian
Government for general and concessional patients under the safety net arrangement
increased from $926 million (22.1% of Australian Government contribution to PBS benefits)
to $1,389 million (25.8%) in 2005–06 (calculated from Table 46).
71
 
Table 46: Pharmaceutical Benefits Scheme
, Australian Government and patients’ payments,
(a)
2001–02 to 2005–06 ($ million)
Benefit category  2001–02 2002–03 2003–04 2004–05 2005–06
Patient contributions
General patients  444 489 545 597 634
Concessional patients  362 370 393 444 489
Total patient contributions  806 860 938 1,041 1,123
Government benefits
General patients–no safety net  691 751 824 851 850
General patients–safety net  148 170 191 223 216
Total general patients  840  920 1,015 1,073 1,066
Concessional patients–no safety net  2,570 2,747 2,972 3,077 3,145
Concessional patients–safety net  778  908 1,005 1,145 1,173
Total concessional patients  3,348 3,655 3,977 4,223 4,318
Total cost to government  4,188  4,575  4,992  5,296  5,384
Total cost of PBS benefit-paid items ($ million)
4,994 5,435 5,929 6,337 6,508
( b)
(a)  Does not include RPBS or ‘doctors bag’ pharmaceuticals.
(b)  Excludes Section 100 payments for human growth hormones, IVF and other non-PBS subsidised pharmaceuticals.
Note:
Components may not add to totals due to rounding.
Source:
DoHA unpublished.
Aids and appliances
Expenditure on health aids and appliances grew by 6.7% per year in real terms over the
period 2003–04 to 2005–06 which was 2.9 percentage points above the growth in recurrent
health expenditure (3.8%) over that period. The fastest year of growth was 1999–00 to
2000–01, when it grew by 30.3% (Table A8).
In 2005–06, expenditure on aids and appliances was $2,787 million, of which 74.3% was
funded by individuals’ out-of-pocket expenditure (calculated from Table A3).
Community health and other
In 2004–05, expenditure by state, territory and local governments totalled $2.9 billion out of a
total of $3.6 billion spent on community health services (Table A2). In 2005–06, community
health was estimated at $3.9 billion, which was a growth of 9.8% from 2004–05 to 2005–06
(Tables A2 and A3).
72
 
Public health
Public health covers those programs which aim to prevent illness and injury and protect or
promote the health of the whole, or specified sub-groups, of the population. While reliable
estimates are not available for earlier years, since 1999–00, estimates of public health
expenditure have been compiled on a consistent basis in each state and territory and for the
Australian Government using a single collection protocol developed through the National
Public Health Expenditure Project (AIHW 2002, 2004, 2006b, 2007b).
Over the past three years, public health expenditure was estimated at:
•
2003–04—$1.3 billion
•
2004–05—$1.4 billion
•
2005–06—$1.5 billion.
Over these three years the Australian Government’s funding of total public health
expenditure has been respectively 52.0%, 60.1% and 54.1% (calculated from
Tables A1, A2 and A3). Part of this Australian Government funding was directed to state and
territory governments to fund public health initiatives (24.6%, 27.4% and 24.4% respectively
of total public health expenditure). State and territory own source funding of public health
was 43.0%, 36.0% and 42.8% respectively.
Dental services
Individuals funded 66.9% of the $5.3 billion spent on dental services in 2005–06 (Table A3).
For the period 2003–04 to 2005–06, real growth in dental services expenditure averaged
1.9% per year—1.9 percentage points below the annual real growth in total recurrent health
expenditure of 3.8% (Table A8). In nominal terms, average annual growth for dental services
expenditure was 7.2% during this period, 1.0 percentage points lower than the growth for
total recurrent health expenditure of 8.2% (Table A7).
Research
Total estimated expenditure on health research in 2005–06 was $1,915 million (Table A3). In
real terms, estimated expenditure grew at an average of 8.0% per year between 1995–96 and
2005–06 (Table 47). Two-thirds (66.6%) of the expenditure on health research in 2005–06 was
funded by the Australian Government, 11.9% by state and territory and local governments
and a further 21.5% was funded by non-government sources (calculated from Table 47).
73
 
Table 47: Recurrent funding for health research, constant prices
, and annual growth rates, by
(a)
broad source of funds, 1995–96  to 2005–06
Government
Austr alian
State/territory
Total recurrent funding
Government
and local  Non-government
Amount
Growth
Amount
Growth
Amount
Growth
Amount
Growth
Year
($m)
(%)
($m)
(%)
($m)
(%)
($m)
(%)
1995–96  592  . .  113 . . 145 . . 850  . .
1996–97
607 2.6  134 18.7 156 7.2 897  5.5
1997–98
555 –8.5  124 –7.4 168 7.7 847  –5.5
1998–99  641 15.5  117 –5.6 153 –8.9 911  7.6
1999–00
702 9.5  139 18.8 241 57.9 1,083 18.8
2000–01  879 25.2  169 21.0 291 20.5 1,339  23.6
2001–02  929 5.6  177 5.0 311 7.0 1,417  5.9
2002–03  1,005 8.1  164 –7.3 329 5.6 1,497  5.6
2003–04  1,023 1.8  180 9.5 340 3.4 1,542  3.0
2004–05  1,133 10.8  208 15.6 374 10.1 1,715  11.2
2005–06  1,221 7.8  219 5.6   394 5.3  1,834 7.0
Average annual growth rate
1995–96 to 1997–98  –3.1  4.9 7.5   –0.2
1997–98 to 2002–03  12.6  5.7 14.4   12.1
1995–96 to 2005–06  7.5  6.8 10.5   8.0
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
4.2 Capital expenditure
Because investments in health facilities and equipment involve large outlays, and the lives of
such facilities and equipment can be very long (up to 50 years is not uncommon for
buildings), capital expenditure can fluctuate greatly from year to year (Table 48 and
Figure 18). It is, therefore, meaningless to look at average growth rates over a relatively short
period such as 10 years. Capital expenditure on health facilities and investments in 2005–06
was $5,053 million (in 2004–05 prices), 6.0% of total health expenditure (Table A6).
Australian Government funding of capital is often by way of grants and subsidies to other
levels of government or to non-government organisations.
State, territory and local governments, in contrast, devote much of their resources to new
and replacement capital for government service providers (for example, hospitals and
community health facilities). There were particularly high levels of capital expenditure in
Queensland towards the end of the 1990s as some of the state’s very old or run-down capital
stock was replaced.
Typically, capital expenditure by the non-government sector accounts for around 60% of all
capital expenditure in any year (Table 48). Non-government capital investment is largely in
private hospitals, but also includes other types of facilities.
74
 
Table 48: Capital expenditure, constant prices
, by source of funds,
( a)
1995–96 to 2005–06 ($ million)
Government
Non-
Australian
State/territory
Year
government Total
Government
and local
1995–96  53 950 919 1,921
42 1,198 1,079 2,318
1996–97
49 1,488 1,116 2,653
1997–98
1998–99  125 1,102 1,693 2,920
30 1,412 1,778 3,221
1999–00
2000–01  111 1,491 2,052 3,654
2001–02  136 1,457 2,163 3,756
2002–03  128 1,454 2,431 4,013
2003–04  147 1,386 2,676 4,209
2004–05  191 1,571 2,906 4,669
2005–06  184 1,857 3,012 5,053
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
3,500
3,000
Non-government
2,500
2,000
1,500
State/territory  and loc al governments
1,000
500
Australian Government
0
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Source:
Table 48.
Figure 18: Capital expenditure, constant prices
, by broad source of funds, 1995–96 to 2005–06
(a )
75
 
4.3  Capital consumption by governments
Capital consumption is otherwise known as depreciation and represents the amount of fixed
capital used up each year. The AIHW sources the data for government capital consumption
from ABS government finance statistics (GFS). Within the National Health Accounts (NHA)
tables, government capital consumption is separately reported to recurrent expenditure and
sits alongside capital expenditure. Together capital expenditure, government capital
consumption and recurrent expenditure add to total health expenditure. Ideally government
capital consumption would be split by area of expenditure and reported as part of recurrent
expenditure. But data are not yet available to do this, so until they are, government capital
consumption will continue to be reported separately as one overall number.
Capital consumption (depreciation) by governments, in real terms, was estimated at
$1,294 million in 2005–06 (Table 49). This was an increase, in real terms, of 2.7% from
2004–05.
Table 49: Capital consumption by governments, current and constant prices
,
( a)
and annual growth rates, 1999–00 to 2005–06
Current prices  Constant prices
Year  $ million  $ million  Real growth (%)
942 977 . .
1999–00
2000–01  984 1,004 2.7
2001–02  1,029 1,053 4.9
2002–03  1,073 1,092 3.7
2003–04  1,160 1,186 8.6
2004–05  1,260 1,260 6.2
2005–06  1,323 1,294 2.7
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Source:
AIHW health expenditure database.
76
 
4.4  Medical expenses tax rebate
The medical expenses tax rebate becomes available to individuals to claim through the
taxation system if they have out-of-pocket medical expenses over a specified limit in an
income year. For the 2005–06 income year the tax rebate was 20 cents for each $1 by which a
taxpayer’s net medical expenses exceeded $1,500 (the threshold). Net medical expenses are
the medical expenses that have been paid less any refunds that have been received, or could
be received, from Medicare or a private health fund.
This tax rebate applies in regard to a wide range of health expenditures, not just expenses
associated with doctors as its name might suggest. It is currently the only component of the
category ‘non-specific tax expenditure’. As the name indicates, ‘non-specific tax
expenditures’ are those tax expenditures that cannot be specifically allocated to the various
areas of health expenditure.
The medical expenses tax rebate in real terms was estimated at $315 million in 2005–06. This
was an increase in real terms of 8.8% from 2004–05.  The average annual real increase over
the decade from 1995–96 was 10.0% (Table 50).
Table 50: Non-specific tax expenditure, current and constant
prices,
(a)
and annual growth rates, 1995–96 to 2005–06
Current prices  Constant prices
Year  $ million  $ million  Real growth (%)
1995–96  91 121 . .
113 149 22.4
1996–97
128 166 11.9
1997–98
1998–99  145 182 9.7
162 199 8.9
1999–00
2000–01  173 205 3.0
2001–02  203 231 13.0
2002–03  225 245 6.1
2003–04  251 262 6.8
2004–05  290 290 10.7
2005–06  329 315 8.8
Average annual growth rate
1995–96 to 2005–06    10.0
(a)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of 2004–05 prices.
Source:
AIHW health expenditure database.
77
 
5 International comparisons
This chapter presents international comparisons of health expenditure for countries that are
current members of the OECD and also countries in the Asia Pacific region. Differences
between countries in terms of what is included as ‘health expenditure’ complicate the
comparison to some extent, so caution is warranted when making comparisons.
Health expenditure by different countries can be compared as a proportion of GDP. This
gives a measure of the proportion of a nation’s productive effort that is spent on funding its
health goods and services. Short-term fluctuations in the health to GDP ratio can, however,
be misleading because they reflect movements in GDP as well as in health expenditure.
Health expenditure per person allows for comparisons between countries and within a
country over time without the distorting effect of movements in GDP and population size
differences. In calculating it, allowance was made for the different purchasing powers of
currencies in the various countries. This has been done by using purchasing power parities
(PPPs) for the whole of GDP to convert expenditures in each of the countries first into US
dollars and then into Australian dollars. The whole of GDP PPPs are used because of the
poor reliability of health-specific ones, particularly in the early part of the period.
For the OECD countries, weighted averages as a whole have been calculated to take into
account the proportional relevance of each component. For example, the weighted average of
the per person health expenditure is total health expenditure divided by the total OECD
population.
5.1  Health expenditure in OECD countries
The OECD median health to GDP ratio for 1995, 2000 and 2005 was respectively 7.5%, 8.1%
and 9.0%. Australia’s average was slightly lower in 1995 (7.4%), higher in 2000 (8.3%) and
lower in 2005 (8.8%). In per person terms Australia’s average was higher in each of the three
years (Table 51).
The United States was by far the highest spender on health care, spending 15.3% of GDP in
2005 and an average expenditure per person that was more than double the amount for
Australia ($8,833 per person compared with $4,121 for Australia) (Table 51).
In 2005, Australia had a health to GDP ratio that was comparable to Italy and New Zealand,
was more than the United Kingdom and considerably lower than the United States
(Table 51 and Figure 19).
Australia’s three tiers of government funded an average of 67.0% of total health expenditure
in 2005, which was 9.2 percentage points below the OECD median of 76.2%. Over the
decade, the government contribution to the funding of health care in Australia edged up by
1 percentage point, while the government share for the OECD overall increased by
1.9 percentage points (Table 52).
Government health expenditure in 2005 as a proportion of GDP was 5.9% in Australia,
1 percentage point below the OECD median, and lower than the 6.9% of GDP that USA
governments spend on health (Table 52).
Australia‘s per person out-of-pocket expenditure ($335 in current prices) was $84 below the
weighted mean in 1995, but $40 above the weighted mean in 2005 (Table 53). Australia’s
78
 
out-of-pocket expenditure as a percentage of total expenditure and total household final
consumption expenditure (HFCE) rose between the two periods from 15.9% to 18.2% and
from 2.0% to 2.8%, respectively. For the OECD weighted averages, while out-of-pocket
expenditure rose as a percentage of total HFCE (2.7% to 2.8%), it fell as a percentage of total
health expenditure (16.6% to 15.5%) (Table 53).
5.2 International comparisons
The OECD averages in this publication are averages (means) of member countries for which
data are available for all the years presented. The periods covered by the OECD data for a
particular year differ from one country to another (see Box 5 for examples).
Box 5: Periods equating to OECD year 2005
Country   Financial year
Australia      1 July 2005 to 30 June 2006
Canada      1 April 2005 to 31 March 2006
France      1 January 2005 to 31 December 2005
Germany      1 January 2005 to 31 December 2005
Japan      1 April 2005 to 31 March 2006
New Zealand     1 July 2005 to 30 June 2006
Sweden      1 January 2005 to 31 December 2005
United Kingdom    1 April 2005 to 31 March 2006
United States     1 October 2004 to 30 September 2005
79
 
Table 51: Health expenditure as a proportion of GDP and per person, OECD countries,
1995 to 2005
(a)
1995  2000  2005
Health to
Per person
Health to
Per person
Health to
Per person
Country
GDP (%)
(A$)
GDP (%)
(A$)
GDP (%)
(A$)
United States  13.3  4,826   13.2  5,985   15.3  8,833
Switzerland  9.7  3,394   10.4  4,167   11.6  5,764
France  9.9  2,726   9.6  3,258   11.1  4,656
Germany  10.1  2,937   10.3  3,451   10.7  4,536
Belgium  8.2  2,416   8.6  3,014   10.3  4,677
Austria  9.8  2,970   10.0  3,701   10.2  4,856
Portugal  7.8  1,447   8.8  2,129   10.2  2,806
Greece  7.5  1,650   9.3  2,555   10.1  4,114
Canada  9.0  2,715   8.8  3,287   9.8  4,590
Iceland  8.2  2,446   9.3  3,533   9.5  4,751
Denmark  8.1  2,433   8.3  3,119   9.1  4,289
Norway  7.9  2,497   8.4  4,037   9.1  6,022
Sweden  8.1  2,288   8.4  2,976   9.1  4,027
New Zealand  7.2  1,642   7.7  2,103   9.0  3,233
Italy  7.3  2,062   8.1  2,722   8.9  3,494
Australia
7.4  2,111   8.3  2,956   8.8  4,121
(b)
United Kingdom  7.0  1,827   7.3  2,435   8.3  3,759
Spain  7.4  1,575   7.2  1,991   8.2  3,112
Turkey  3.4  247   6.6  591   7.6  809
Finland  7.5  1,886   6.6  2,249   7.5  3,217
Ireland  6.7  1,599   6.3  2,387   7.5  4,038
Czech Republic  7.0  1,208   6.5  1,272   7.2  2,041
Slovak Republic  . .  . .    5.5  779    7.1  1,569
Mexico  5.6  512   5.6  663   6.4  932
Poland  5.5  550   5.5  773   6.2  1,196
Korea  4.1  701   4.8  1,022   6.0  1,819
Hungary  7.3  904   6.9  1,123   n.a.  n.a.
Japan  6.9  2,041   7.7  2,577   n.a.  n.a.
Luxembourg  5.6  2,682   5.8  3,909   n.a.  n.a.
Netherlands  8.3  2,404   8.0  2,958   n.a.  n.a.
Weighted average (29
countries)
9.6  2,485   9.9  3,136   11.1  4,485
( c )( d)
Median (29 countries)
7.5  2,062   8.1  2,722   9.0  4,038
(c )
(a)  See definition of ‘OECD financial year’ in Box 5.
(b)  Expenditure based on the OECD System of Health Accounts (SHA) framework.
(c)  The 29 countries included in the averages exclude the Slovak Republic. Averages for 2005 incorporate 2004 data for Hungary, Japan,
Luxembourg and the Netherlands.
(d)  Average weighted by GDP or population.
Note:
Expenditures converted to Australian dollar values using GDP purchasing power parities.
Sources:
AIHW health expenditure database; OECD 2007.
80
 
% GDP
18.0
16.0
USA
14.0
12.0
France
Ger m an y
10.0
Canada
Australia
8.0
UK
NZ
6.0
Japan
4.0
2.0
0.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
(a)      See definition of ‘OECD financial year’ in Box 5.
Sources:
AIHW health expenditure database; OECD 2007.
Figure 19: Health expenditure as a proportion of GDP, selected OECD countries,
1995 to 2005
(a)
81
 
Table 52: Government health expenditure as a proportion of total health expenditure and
GDP, OECD countries, 1995 to 2005
(per cent)
(a )
1995  2000  2005
Share of
Share of
Share of
total health
Share
total health
Share
total health
Share
expenditure
of GDP
expenditure
of GDP
expenditure
of GDP
Country
(%)
(%)
(%)
(%)
(%)
(%)
Greece 52.0 3.9  44.2 4.1  42.8 4.3
United States  45.3  6.0    43.7  5.8    45.1  6.9
Mexico 42.1 2.4  46.6 2.6  45.5 2.9
Korea 35.7 1.5  46.8 2.2  53.0 3.2
Switzerland 53.8 5.2  55.6 5.8  59.7 6.9
Australia
66.0 4.9  67.0 5.5  67.0 5.9
(b)
Poland 72.9 4.0  70.0 3.9  69.3 4.3
Canada 71.4 6.4  70.4 6.2  70.3 6.9
Spain 72.2 5.4  71.6 5.2  71.4 5.9
Turkey 70.3 2.4  62.9 4.2  71.4 5.4
Belgium 78.5 6.5  76.0 6.6  72.3 7.4
Portugal 62.6 4.9  72.5 6.4  72.7 7.4
Slovak Republic  . .  . .    89.4  4.9    74.4  5.3
Austria 71.5 7.0  75.9 7.6  75.7 7.7
Italy 70.8 5.1  72.5 5.8  76.6 6.8
Germany 81.6 8.2  79.7 8.2  76.9 8.2
Finland 75.6 5.6  75.1 4.9  77.8 5.9
Ireland 71.8 4.8  72.9 4.6  78.0 5.8
New Zealand  77.2  5.5    78.0  6.0    78.1  7.0
France 78.6 7.7  78.3 7.5  79.8 8.9
Iceland 83.9 6.9  82.0 7.6  82.5 7.9
Norway 84.2 6.6  82.5 6.9  83.6 7.6
Denmark 82.5 6.7  82.4 6.8  84.1 7.7
Sweden 86.6 7.0  84.9 7.1  84.6 7.7
United Kingdom  83.9  5.8    80.9  5.9    87.1  7.2
Czech Republic  90.9  6.4    90.3  5.9    88.6  6.4
Hungary 84.0 6.1  70.7 4.9  n.a. n.a.
Japan 83.0 5.7  81.3 6.2  n.a. n.a.
Luxembourg 92.4 5.1  89.3 5.2  n.a. n.a.
Netherlands 71.0 5.9  63.1 5.0  n.a. n.a.
Weighted average (28
countries)
60.9 5.8   59.4  5.9   59.9  6.7
( c )( d)
Median (28 countries)
74.3 5.7  74.0 5.9  76.2 6.9
(c )
(a)  See definition of ‘OECD financial year’ in Box 5.
(b)  Expenditure based on the OECD SHA framework.
(c)  The 28 countries included in the averages exclude the Slovak Republic and the Netherlands. Averages for 2005 incorporate
2004 data for Hungary, Japan and Luxembourg.
(d)  Average weighted by total health expenditure or GDP.
Sources:
AIHW health expenditure database; OECD 2007.
82
 
Table 53: Out-of-pocket health expenditure per person, and as shares of total health expenditure
and household final consumption expenditure
, OECD countries, 1995 and 2005
(a )
(b )
1995  2005
Per person
Share of total
Share
Per person
Share of total
Share of
out-of-pocket
health
of total
out-of-pocket
health
total
expenditure
expenditure
HFCE
expenditure
expenditure
HFCE
Country
(A$)
(%)
(%)
(A$)
(%)
(%)
Switzerland 1,119 33.0 5.5 1,761 30.5 6.1
United States  725 15.0 2.9  1,162 13.1 2.9
Belgium n.a. n.a. n.a.  994 21.2 4.2
Norway  380 15.2 2.5  943 15.7 3.5
Iceland  393 16.1 2.4  831 17.5 2.9
Austria  496 16.7 3.0  794 16.4 3.1
Australia
335 15.9 2.0  750 18.2 2.8
(c )
Italy  549 26.6 3.3  709 20.3 3.1
Spain  371 23.5 3.0  697 22.4 3.2
Korea  385 54.9 4.4  686 37.7 4.4
Canada  432 15.9 2.6  665 14.5 2.6
Portugal n.a. n.a. n.a.  625 22.3 3.6
Denmark  396 16.3 2.6  614 14.3 2.7
Germany 286 9.8 1.8  595 13.1 2.4
Finland  387 20.5 3.1  573 17.8 2.7
Ireland  230 14.4 1.9  542 13.4 2.4
New Zealand  265 16.2 2.0  541 16.7 2.6
Mexico  288 56.2 4.8  477 51.2 4.8
Slovak Republic  . .  . .  . .    355  22.6  2.8
Netherlands  n.a. n.a. n.a.  345 n.a. 1.5
France  218 8.0 1.4  322 6.9 1.4
Poland  149 27.1 2.5  312 26.1 2.6
Czech Republic  110  9.1  1.3    222  10.9  1.6
Turkey  74 29.7 1.4  160 19.9 2.2
Greece  n.a. n.a. n.a.  n.a. n.a. n.a.
Hungary 145 16.0 2.2  n.a. n.a. n.a.
Japan 313 15.3 1.9  n.a. n.a. n.a.
Luxembourg 166 6.2 0.8  n.a. n.a. n.a.
Sweden  n.a. n.a. n.a.  n.a. n.a. n.a.
United Kingdom  199  10.9  1.2    n.a.  n.a.  n.a.
Weighted
average (23
countries)
419 16.6 2.7  710 15.5 2.8
( d) (e )
Median (23
countries)
335 16.1 2.5  595 17.3 2.7
( d)
(a)  Total HFCE covers all goods and services, including health.
(b)  See definition of ‘OECD financial year’ in Box 5.
(c)  Expenditure based on the OECD SHA framework.
(d)  The 23 countries included in the averages exclude Belgium, Greece, Netherlands, Portugal, Slovak Republic, Sweden and the
United Kingdom. Averages for 2005 incorporate 2004 data for Hungary, Japan and Luxembourg.
(e)  Averages weighted by population for per person out-of-pocket expenditure and by health expenditure or HFCE for other categories.
Note:
Expenditures converted to Australian dollar values using GDP purchasing power parities.
Sources:
AIHW health expenditure database; OECD 2007.
83
 
Table 54: Components of growth in health expenditure, selected OECD countries, 1995 to 2005
,
(a)
(per cent)
Inflation    Real growth
Nominal
Excess
Population
Utilisation
Country
growth General
health Health
component
component Total
Australia
8.2 2.8 0.3 3.1   1.2  3.7  5.0
(b)
Canada  6.2 2.0 0.1 2.1   1.0  3.1  4.1
Denmark
5.5 2.1 0.0 2.0   0.4  3.0  3.4
( c)
Finland  5.2 1.4 1.8 3.2   0.3  1.6  1.9
France  5.0 1.4 –0.1 1.4   0.5  3.0  3.6
Italy  6.3 2.8 0.4 3.2   0.2  2.8  3.0
Spain
6.8 3.1 –0.2 2.9   0.6  3.2  3.8
( c)
Sweden
6.0 1.3 2.0 3.4   0.2  2.4  2.6
( d )
Switzerland
4.1 0.5 0.2 0.7   0.5  2.8  3.4
(e )
United States  6.9 2.0 1.2 3.2   1.1  2.5  3.6
(a)  See definition of ‘OECD financial year’ in Box 5.
(b)  Expenditure based on the OECD SHA framework.
(c) 1995 to 2001.
(d) 1995 to 2002.
(e) 1995 to 2003.
Sources:
AIHW health expenditure database; OECD 2007.
Factors contributing to the growth in the health to GDP ratio are inflation (both general
inflation and excess health inflation) and changes in the level of goods and services used,
either from population growth or from more intensive per person use of goods and services.
The general rate of inflation is an indication of price pressures that apply throughout the
economy, and the rate of excess health inflation indicates additional price rises specific to the
health sector. The ability of a nation’s health financing system to influence growth in health
prices is one factor relevant to controlling growth in total expenditure on health.
For the decade to 2005, Australia had an average annual excess health inflation rate of 0.3%
which was the fifth highest for this group of 10 countries (Table 54).
In order to compare the level of expenditure without the complication of different rates of
population growth, it is useful to examine real growth in average per person expenditure on
health. For the decade to 2005, Australia had an average annual real growth in per person
expenditure of 3.7% (Table 54). This represents extra volumes of health services delivered
per Australian—this was the highest of the 10 countries in this group.
5.3  Health expenditure in the Asia–Pacific region
There is a very broad range of economies within the Asia–Pacific region, including highly
developed economies like Australia and Japan (Tables 51 to 53) as well as developing
economies like Malaysia, Thailand, Vietnam, Indonesia and Bangladesh (Table 55).
In 2004 Australia had the second highest health to GDP ratio, at 8.8%. For the other countries
in Table 55, Myanmar (2.2%), Indonesia (2.8%) and Bangladesh (3.1%) had a relatively low
health to GDP ratios.
84
 
Australia ($3,906 per person) had the highest average expenditure on health while Myanmar
($6 per person) had the lowest.
There are many reasons underlying the substantial differences between the levels of
resourcing for health in these countries. In many cases, low GDP means few resources are
available to devote to health. But on top of this, in some countries governments do not place
a high priority on health services.
Table 55: Health expenditure comparison for selected Asia–Pacific countries, 2004
Health to
Per person
Government to
Per person out-
Out-of-pocket to
Country
GDP (%)
(A$)
total (%)
of-pocket (A$)
total (%)
Australia
8.8 3,906 66.9  707 18.1
(a )
Singapore  3.7 1,282 34.0  820 63.9
Malaysia  3.8 245 58.8  75 30.5
Fiji  4.6 201 62.3  76 37.7
Tonga  6.3 159 79.5  28 17.4
Samoa  5.3 148 76.8  27 18.1
Thailand  3.5 120 64.7  32 26.4
China  4.7 95 38.0  51 53.6
Vanuatu  4.1 79 76.8  11 13.3
Timor-Leste 11.2 59 78.9 3 5.4
Sri Lanka  4.3 58 45.6  26 45.7
Mongolia  6.0 51 66.6  16 30.8
Philippines  3.4 49 39.8  23 46.9
Solomon Islands  5.9  47  94.5  1  3.1
Indonesia  2.8 44 34.2  22 49.1
India  5.0 43 17.3  33 77.6
Papua New Guinea  3.6  41  84.3  3  7.3
Vietnam  5.5 41 27.1  26 64.2
Cambodia  6.7 32 25.8  20 63.4
Lao  3.9 23 20.5  16 71.8
Bhutan  4.6 21 64.2  7 35.8
Nepal  5.6 19 26.3  12 65.0
Bangladesh  3.1 19 28.1  12 63.5
Myanmar  2.2 6 12.9  5 86.5
(a)  Expenditure based on the OECD SHA framework.
Sources:
AIHW health expenditure database, WHO database.
5.4  Australian System of Health Accounts
The AIHW is responsible for collecting, collating and reporting expenditure on health in
Australia each year. It is also the national coordinating body for the provision of most data
on social expenditures to the OECD. The AIHW’s responsibilities in this regard include
expenditure on welfare services, social security and housing as well as health.
85
 
The format that the AIHW uses for its national reports of expenditure on health is based on
one adopted by the World Health Organization (WHO) during the 1970s, known as the
Australian National Health Accounts (NHA). Australia’s reporting format has not changed
markedly since the AIHW’s first national health expenditure report in 1986, despite
considerable change in the way health care is delivered. The WHO has recently moved to
adopt a reporting framework based on a system of health accounts developed by the OECD.
In 2000, the OECD published guidelines for a new method of international reporting for
health expenditure. That publication,
A system of health accounts
(OECD 2000), was developed
to encourage international consistency in the way health expenditure was reported
throughout the OECD membership. This International Classification for Health Accounts
(ICHA) classifies expenditure on health in terms of:
•  health care by function (ICHA-HC)
•  health care service provider industries (ICHA-HP)
•  sources of funding health care (ICHA-HF).
The functional classification refers to the goals or purposes of health care. At the broadest
level these are disease prevention, health promotion, treatment, rehabilitation and
long-term care.
The provider classification is a list of health care provider types which has been refined and
modified from the International Standard Industrial Classification (UN 2002).
The funder classification follows the System of National Accounts 1993 (OECD 1994)
guidelines for the allocation of funds by sector.
The major difference between estimates derived using the Australian NHA and the OECD
System of Health Accounts (SHA) is the value of total expenditure. The NHA includes all the
‘health’ functional classifications. It also includes the following ‘health-related’ functional
classifications in its estimates of total health expenditure:
•
capital expenditure of health care provider institutions
•
research and development in health
•
food, hygiene and drinking water control
•
environmental health
•
administration and provision of social services in kind to assist living with disease and
impairment
•
administration and provision of health-related cash-benefits.
‘Education and training of health personnel’ is excluded from the NHA estimates of total
health expenditure.
The SHA, on the other hand, includes, as well as the ‘health’ functions, only
HC.R.1—‘Capital formation of health care provider institutions’—from the ‘health-related’
functions in its total health expenditure estimates. In 2005–06 (OECD year 2005), the estimate
of total health expenditure using the NHA was $86.9 billion, $2,149 million or 2.5% higher
than the SHA total for health expenditure ($84.7 billion) (Tables 1 and 56).
The AIHW’s health expenditure database for all years since 1998–99 is structured in a way
that allows simultaneous reporting according to the NHA reporting matrix and the SHA
classifications. Through the work of the Health Expenditure Advisory Committee (HEAC),
an Australian System of Health Accounts is being developed that can be mapped to the
OECD’s SHA, but which uses terminology that is more relevant to the Australian domestic
86
 
situation. When this is achieved, the Australian SHA will be better able to provide more
detailed and comprehensive data for both national purposes and international
comparability.
The following three tables provide a snapshot of the data for 2004–05 and 2005–06, following
the OECD format.
The definitions of OECD categories can be found at:
http://www.oecd.org/dataoecd/49/51/21160591.pdf.
Table 56: Total health expenditure, by financing agents, current prices, 2004–05 and 2005–06
2004–05  2005–06
Amount
Proportion
Amount
Proportion
SHA code  Description
($m)
(%)
($m)
(%)
HF.1  General government  52,990 66.9  56,808 67.0
HF.1.1  General government excluding social security funds  52,990 66.9  56,808 67.0
HF.1.1.1  Central government  34,010 42.9  35,492 41.9
HF.1.1.2, 1.1.3 Provincial/local government  18,980 24.0  21,316 25.2
HF.1.2  Social security funds  — —  — —
HF.2  Private sector  26,208 33.1  27,921 33.0
HF.2.1  Private social insurance  —  —    —  —
HF.2.2  Private insurance enterprises (other than social
insurance)  6,038 7.6  6,284 7.4
HF.2.3  Private household out-of-pocket expenditure  14,329  18.1    15,415  18.2
HF.2.4  Non-profit institutions serving households (other
than social insurance)  — —  — —
HF.2.5  Corporations (other than health insurance)  5,841 7.4  6,222 7.3
HF.3  Rest of the world
— —  — —
Total health expenditure  79,198 100.0  84,730 100.0
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
87
 
Table 57: Total health expenditure, by mode of production, current prices, 2004–05 and 2005–06
2004–05  2005–06
Amount
Proportion
Amount
Proportion
SHA code  Description
($m)
(%)
($m)
(%)
Inpatient care
(a )
HC.1.1, 2.1  Curative & rehabilitative care  26,493  33.5    28,900  34.1
HC.3.1  Long-term nursing care  387  0.5    415  0.5
Services of day-care
HC.1.2, 2.2  Day cases of curative & rehabilitative care  —  —    —  —
HC.3.2  Day cases of long-term nursing care  —  —    —  —
Outpatient care
HC.1.3, 2.3  Outpatient curative & rehabilitative care  25,080  31.7    26,746  31.6
HC.1.3.1  Basic medical and diagnostic services  9,252  11.7    9,732  11.5
HC.1.3.2  Outpatient dental care  5,054  6.4    5,327  6.3
HC.1.3.3  All other specialised health care  2,781  3.5    2,994  3.5
HC.1.3.9  All other outpatient curative care  6,357  8.0    6,946  8.2
HC.2.3  Outpatient rehabilitative care  1,637 2.1  1,748 2.1
Home care
HC.1.4, 2.4  Home care (curative & rehabilitative)  —  —    —  —
HC.3.3  Home care (long-term nursing care)  27  —    25  —
Ancillary services to health care
HC.4.1  Clinical laboratory  1,374 1.7  1,478 1.7
HC.4.2  Diagnostic imaging  1,602 2.0  1,745 2.1
HC.4.3  Patient transport and emergency rescue  1,482  1.9    1,506  1.8
HC.4.9  All other miscellaneous ancillary services  66  0.1    32  —
Medical goods dispensed to outpatients
HC.5.1  Pharmaceuticals and other medical
non-durables  11,637 14.7  12,030 14.2
HC.5.2  Therapeutic appliances and other medical
durables  2,617 3.3  2,797 3.3
Total expenditure on personal health care  70,764  89.4    75,674  89.3
HC.6  Prevention and public health services  1,245 1.6  1,263 1.5
HC.7  Health administration and health insurance  2,521  3.2    2,626  3.1
Total expenditure on collective health care  3,766  4.8    3,889  4.6
Total current expenditure on health care
74,530 94.1  79,562 93.9
Health-related functions
HC.R.1  Capital formation of health care provider
institutions  4,669 5.9  5,167 6.1
Total health expenditure  79,198  100.0    84,730  100.0
(a)  In-patient includes all admitted patient services whether they are overnight admissions or same-day admissions.
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
88
 
Table 58: Total health expenditure, by provide r, current prices, 2004–05 and 2005–06
2004–05  2005–06
Amount
Proportion
Amount
Proportion
SHA code  Description
($m)
(%)
($m)
(%)
HP.1  Hospitals  29,718 37.5  32,421 38.3
HP.2  Nursing and residential care facilities  28  —    27  —
HP.3  Providers of ambulatory health care  27,665  34.9    29,422  34.7
HP.3.1  Offices of physicians  11,155  14.1    11,732  13.8
HP.3.2  Offices of dentists  5,064 6.4  5,337 6.3
HP.3.3–3.9  All other providers of ambulatory health care  11,447  14.5    12,353  14.6
HP.4  Retail sales and other providers of medical
goods  13,685 17.3  14,192 16.8
HP.5  Provision and administration of public health
programs  1,245 1.6  1,260 1.5
HP.6  General health administration and insurance  6,856  8.7    7,406  8.7
HP.6.1  Government administration of health  3,378  4.3    3,734  4.4
HP.6.2  Social security funds  — —  — —
HP.6.3, 6.4, 6.9  Other social insurance  3,478  4.4    3,672  4.3
HP.7  Other industries (rest of the economy)  —  —    —  —
HP.9  Rest of the world  2  —    1  —
Total health expenditure  79,198  100.0    84,730  100.0
Note:
Components may not add to totals due to rounding.
Source:
AIHW health expenditure database.
89
 
6  Classification of residential aged care
expenditure
6.1 Background
In previous editions of the Institute’s
Health expenditure Australia
and
Welfare expenditure
Australia
reports, expenditure for high-level care services in residential aged care facilities
was classified to health and expenditure for low-level care services was classified to welfare
services. All expenditure on residential aged care facilities is now classified to welfare
services in accordance with the classification practices of the Department of Finance and
Administration (DoFA), the ABS, the DoHA, Productivity Commission and Department of
Treasury. This chapter provides:
•   some historical background on aged care policy that relates to the classification of aged
care expenditure between health and welfare services
•   an explanation as to why all residential aged care expenditure is now being classified as
welfare services.
The DoFA classifies all Australian Government residential aged care expenditure under
Government Purpose Classification (GPC) 2622 ‘Welfare services for the aged’, and therefore
all residential aged care expenditure is included under the social security and welfare
function for reporting in the annual Final Budget Outcome papers and other Budget papers
produced by the Treasury. These data are passed to the ABS which reports residential aged
care expenditure under ‘Welfare services for the aged’.
The DoHA reports residential aged care subsidies under Outcome 3 Aged Care and
Population Ageing in its annual reports. It does not split these subsidies between ‘health’
and ‘welfare’ services.
The Productivity Commission publishes information on aged care expenditure in a number
of contexts. In the
Report on Government Services
(SCRGSP 2007
)
, the Productivity
Commission reports all residential aged care expenditure under the Community services
category, not the Health category. In its report
Economic implications of an ageing Australia
(Productivity Commission 2005), projection of aged care expenditure (including all
residential aged care expenditure) was separate from health expenditure.
In the Intergenerational Reports (Treasury 2002, 2007), the Department of Treasury provides
information on the impact of an ageing population on the long-term sustainability of
government finances. It includes projections for spending and revenue. Information on
Australian Government aged care spending and revenue is included in a section titled
‘Health and aged care’ with information on aged care (including residential aged care)
reported separately to health.
The AIHW has been splitting residential aged care expenditure into health and welfare
based on the Resident Classification Scale (RCS) categories. That is, expenditure for residents
classified as RCS 1 to 4 (high level care needs) was allocated to health expenditure and
expenditure for those classified as RCS 5 to 8 (low level care) was allocated to welfare
services expenditure.
90
 
Table 59: Classification of residential aged care expenditure by various Australian Government
agencies
Australian Government
agencies Classification  Publication
DoFA  GPC2622—Welfare services for the aged  Final Budget Outcome, Treasury (annual)
ABS  Same as DoFA  Government Finance Statistics (annual)
DoHA  Not split  between health and welfare  Annual report: Outcome 3 Aged Care and
Population ageing
Productivity Commission  Community services category
Report on Government Services (annual)
Non-health
Economic Implications of an Ageing
Australia
(Productivity Commission 2005)
Treasury  Aged care  Intergenerational Report (Treasury 2002 &
2007)
AIHW  Part health and part welfare  ‘
Health expenditure Australia’
, and
‘
Welfare expenditure Australia’
Except for the AIHW, in recent times Australian Government agencies have been reporting
residential aged care expenditure in community services/welfare services or aged care
categories. Section 6.2 provides a summary of history from 1974 to the present on changes in
aged care policy and its influence on classification. Section 6.3 provides a summary of the
results obtained from more recent evidence on the nature of care provided to the aged in
residential care facilities which inform discussion on the classification of residential aged
care expenditure to welfare services.
6.2 History
Up to 1996, there were two separate Acts underpinning funding on nursing homes and
hostels for the aged or people with disabilities. Payment of nursing home benefits was
provided for under the
National Health Act 1953
(AGD 1953) and was allowed under the
hospital benefits provision of section 51 (xxiiiA) of the Constitution. These were benefits paid
by the government to individual patients in nursing homes (under section 49B of the
National Health Act 1953). The fact that the hospital benefits provision of the constitution
was used was an indication that nursing home benefits were seen as having a health
purpose. On the other hand, the deficit funding arrangements under the
Nursing Homes
Assistance Act 1974
(AGD 1974) authorise assistance to particular categories of nursing
homes, rather than to individuals. It is likely, however, that it too came under Section 51
(xxiiiA).
The government’s involvement in respect of hostels was under the
Aged or Disabled Persons
Care Act 1954
(AGD1954). This legislation was probably enacted pursuant to the provisions
of section xxiii of the Constitution, which gives the Parliament of the Commonwealth power
to legislate with respect to Invalid and old-age pensions. It took the form of capital and
recurrent funding to institutions that provided care to aged and/or disabled people.
The classification to health and welfare services in relation to the Australian Government’s
expenditure on services to the aged and the frail has changed over time. The Australian
Government viewpoint on nursing homes during the earlier period, particularly 1974 to 1984
was that nursing homes were clearly ‘health’ institutions. This was evident both from the
admissions procedures adopted in respect of patients and the nature of the type of care that
was required to be delivered to patients. However, this view has gradually changed when
91
 
new evidence on the nature of care provided to older people living in residential care
facilities that it is more ‘welfare services’. The change became more evident after the
1986
Nursing Homes and Hostels Review
(DCSH 1986).
The
Aged Care Act 1997
(AGD 1997), which replaced the two Acts above, unified nursing
home and hostel sectors. The Australian Government’s new residential aged care facilities
funding arrangements enabled a single form of funding in respect of care provided to all
people cared for in residential aged care facilities (formerly hostels and nursing homes).
Funding varied according to each resident’s assessed need. The instrument used in assessing
needs is called the Resident Classification Scale (RCS). There are 8 RCS categories from
RCS 1 to RCS 8.  These are ranked progressively in terms of intensity of need. RCS 1 to 4 are
described as high-level care, and RCS 5 to 8 are low-level care. Funding for residents
assessed in category 1 was the highest. Residents classified in category 8 do not attract any
funding.
Table 60: Changes in aged care arrangements and policy since 1974
Year Committee/Department/Act Review  Changes
1974  Hospitals and Allied Services
Nursing home staffing
Eligibility certified by a registered medical practitioner
Advisory Committee (HASAC)
levels and physical
standards
Minimum three hours care by registered nurse per
week, and seven hours care by unregistered nurses
1982  The House of Representative
Accommodation and
Recommendations of uniform standard ‘nursing
Standing Committee on
home care for the aged
hours’
Expenditure
1985  The Senate Select Committee
Accommodation and
Recommendations of uniform standard ‘nursing
on Private Hospitals and
home care for the aged
hours’
Nursing Homes
1986  Department of Community
Nursing Homes and
Home and Community Care (HACC) extended
Services and Health
Hostels Review
through community housing for the elderly, self-
contained units and hostels to nursing home care
Various programs supporting residential facilities for
the aged and disabled were amalgamated into a
single ‘Residential Care Program’
The differential between ‘personal care subsidy’ for
residents in hostels, and ‘ordinary nursing home
benefit’ provided to moderately dependent patients in
nursing homes, was narrowed
‘Ordinary nursing care’ and ‘extensive nursing care’
categories were differentiated. This allowed ordinary
care beds to be progressively absorbed into providing
‘extensive nursing care’
1997  Aged Care Act 1997  Structure of aged care
Nursing home and hostel sectors were unified
services
Providers offered both high and low care
Single funding to all people cared for in residential
aged care facilities, through the 8 Residential
Classification Scale (RCS)
Current  The Australian Government
Implementation of
Replacement of the 8 RCS funding classifications with
2004 Budget announcement
changes over four years
the 3 Aged Care Funding Instruments (ACFI)—low,
medium and high
Some have associated higher level care categories with higher needs for health services.
However, just because illness is the cause of the need for care does not mean that the
provided type of care has a health purpose. A service has a health purpose if the service is
actively aiming to improve a person’s health or to prevent illness or injury. Most residential
aged care services have a care focus rather than a cure focus.  Most of the services are to cater
92
 
for needs for personal care that have developed because of declines in health status in the
past, but are not directly attempting to reverse that health status decline.
The questions used to determine the resident’s intensity of care needs, and thus the amount
of funding paid, cover the areas listed below (Table 61). The majority of these activities
(excluding 17 to 19) fall under the category of personal care assistance rather than health
care. These activities can be performed by people without health qualifications, and this is
another indication that the activities do not primarily have a health purpose. For funding
purposes, each resident is classified according to the answers given to the RCS questionnaire.
Each answer has a different weight applied and the sum of these weights gives an overall
score for the resident.
Table 61: RCS question set and weightings for residential aged care population June 2003
RCS question Description  A B C D
1  Communication  0.00 0.28 0.36 0.83
2  Mobility  0.00 1.19 1.54 1.82
3  Meals and drinks  0.00  0.67  0.75  2.65
4 Personal hygiene  0.00 5.34 14.17 14.61
5 Toileting  0.00 5.98 10.65 13.70
6  Bladder management  0.00 2.22 3.82 4.19
7  Bowel management  0.00 3.32 5.72 6.30
8  Understanding and undertaking living activities  0.00 0.79 1.11 3.40
9  Problem wandering and intrusive behaviour  0.00  0.80  1.58  4.00
10  Verbally disruptive or noisy  0.00  1.19  1.75  4.60
11  Physically aggressive  0.00 2.34 2.69 3.05
12  Emotional dependence  0.00 0.28 1.50 3.84
13  Danger to self or others  0.00  1.11  1.54  1.98
14  Other behaviour  0.00 0.91 1.82 2.61
15  Social and human need—care recipient  0.00  0.95  1.98  3.01
16  Social and human need—families and friends  0.00  0.28  0.55  0.91
17 Medication  0.00 0.79 8.55 11.40
18  Technical and complex nursing procedures  0.00  1.54  5.54  11.16
19  Therapy  0.00 3.64 6.10 7.01
20  Other services  0.00 0.71 1.46 2.93
Source:
DoHA 2005b.  Those residents classified in category D need more assistance with that particular area as compared in those classified in
the lower need A, B and C categories. And A is lower need than B, and B lower need than C.
In the 2004 Budget, the Australian Government announced a number of further changes to
the residential aged care system. These changes are being implemented progressively over
four years and have implications for data reporting from 2004–05 onwards. The changes with
data implications are:
•   replacement of the eight RCS funding classifications with Aged Care Funding Instrument
(ACFI) categories:
–low
–medium
–high, and
•   two new supplements, each paid at three levels (low, medium and high) for:
–mental and behavioural conditions, including dementia, and
–the other for complex health care needs, including palliative care.
From 20 March 2008 a new assessment instrument, the ACFI, which uses a different question
set (12 questions) to the RCS classifications, will be introduced (DoHA 2007). From the date
93
 
of ACFI’s introduction for the foreseeable future, the residential data set will be a mix of
reporting based on a new question set (the ACFI) and reporting based on the previous
question set (the 20 RCS questions) (Table 61).
6.3  Residential aged care expenditures: estimating
the distribution of expenditure across different
service needs
The AIHW has estimated the funding that is allocated for each RCS question for the
residential aged care population as at June 2003. The 20 questions used as the basis for these
calculations and details of the methodology used are available in
Welfare expenditure Australia
2005–06
(AIHW in press).
The following three areas could be considered health services: medication; technical and
complex nursing procedures; and therapy. The other 17 areas, which mostly involve
assistance with activities of daily living, could be considered welfare services. On that basis,
the three areas allocated to health (RCS questions 17 to 19) accounted for 28% of the total
government basic subsidy for residential aged care (Table 62). The other 17 areas accounted
for 72% of the government basic subsidy.
This approach contrasts with the method of allocation used in previous
Health expenditure
Australia
reports based on the RCS1–8 scale where RCS care need categories 1–4 were
allocated to high level care and therefore to health, and RCS 5–8 categories were allocated to
low level care and therefore to welfare services. This method resulted in a split of
approximately 78% to health and 22% to welfare services.
Table 62: RCS questions and funding subsidies for residential aged care population June 2003
Residential aged care
Per cent of total
RCS question  Description
basic subsidy  ($m)
expenditure
1 Communication
27  0.6
2 Mobility
99  2.2
3  Meals and drinks  65  1.5
4 Personal hygiene  942  21.2
5 Toileting
618  13.9
6 Bladder management  191  4.3
7 Bowel management  363  8.2
8  Understanding and undertaking living activities  115  2.6
9  Problem wandering and intrusive behaviour  69  1.6
10  Verbally disruptive or noisy  118  2.7
11 Physically aggressive  50  1.1
12 Emotional dependence  132  3.0
13  Danger to self or others  78  1.8
14 Other behaviour  143  3.2
15  Social and human need—care recipient  148  3.3
16  Social and human need—families and friends  33  0.7
17 Medication
493  11.1
18  Technical and complex nursing procedures  376  8.5
19 Therapy
357  8.0
20 Other services
24  0.5
Total
4,441 100.0
Source:
Calculated by AIHW based on data from the DoHA Aged and Community Care Management Information System (ACCMIS) database.
94
 
Given that over two-thirds of the expenditure for residential care facilities is of a welfare
services nature rather than a health nature, it is no longer appropriate to continue to use the
high level care/low level care split whereby 78% of residential aged care expenditure was
allocated to health and 22% to welfare services. It has been decided, after consultation with
DoHA, the ABS and the Health Expenditure Advisory Committee to classify all expenditure
for residential aged care facilities under welfare services, as the majority of this expenditure
has a welfare purpose. This is in accord with the classification practice of the DoFA, the ABS
and other government agencies.
All data appearing in this report for prior years have been revised accordingly.
There is an argument for splitting residential aged care expenditure about two-thirds to
welfare services and one-third to health, but such a split is difficult to estimate technically
and is not in accord with existing management and program classifications so is not a
practically realistic option.
Full details of expenditure on residential aged care are given in the
Welfare expenditure
Australia
reports, but a summary of expenditure for this area is given below.
Table 63: Residential aged care expenditure
,
(a )
current and constant prices
, 1999–00 to 2005–06
(b )
Current prices
Constant prices
Period
($ m)
($ m)
1999–00 5,043 5,979
2000–01 5,273 6,252
2001–02 5,599 6,225
2002–03 6,010 6,461
2003–04 7,018 7,279
2004–05 7,247 7,247
2005–06 7,492 7,185
(a)   Residential aged care subsidies from DVA, DoHA, state and territory
governments, non-government organisations, injury compensation insurers,
and fees from residents. Also includes payments for the Extended Aged Care
in the Home program.
(b)   Constant price health expenditure for 1999–00 to 2005–06 is expressed in
terms of 2004–05 prices.
Source:
AIHW health expenditure database.
In 2005–06, recurrent expenditure on residential aged care facilities by the Australian
government, state and territory governments, and co-contribution fees paid by residents was
estimated at $7,492 million (Table 63). In real terms, there was a 20.2% increase in recurrent
expenditure on residential aged care facilities between 1999–00 ($5,979 million in constant
prices) and 2005–06 ($7,185 million).
Implications of reclassification
Allocating all residential care subsidies to welfare services has a significant impact on the
total amount of expenditure designated to health and to welfare services, and therefore the
health expenditure and welfare services expenditure to GDP ratios (Table 64). Compared
with the previous allocation method, the health expenditure to GDP ratio in 2004–05 is lower
95
 
by 0.65 percentage points and the welfare services expenditure to GDP ratio is higher by
0.65 percentage points (Table 64). However, under both approaches the combined
health/welfare services expenditure to GDP ratio remains the same at 12%.
Table 64: Health and welfare services expenditure to GDP ratio based on two classification
approaches, 2004–05 and 2005–06 (per ce nt)
Based on residential aged care
Based on all residential aged care
expenditure split between health and
expenditure allocated to welfare
welfare by RCS 1-4/5-8
services
Welfare services
Welfare services
Health to GDP
to GDP   Health to GDP
to GDP
2004–05  9.7 2.4  9.05 3.0
2005–06  9.6 2.4  9.0 3.0
Source:
Calculated by AIHW from the health and welfare expenditure databases and the DoHA ACCMIS database.
96
 
7 Technical notes
7.1 General
Health expenditure is reported domestically using the Australian National Health Accounts
(NHA) framework. This framework, which has operated since the early 1960s, is based on a
national health expenditure matrix showing areas of expenditure by sources of funding.
Since 1998, the AIHW, which has responsibility for developing estimates of national health
expenditure, has collated and stored its health expenditure data in a way that enables it to
simultaneously report national health expenditure according to the national framework and
according to the OECD’s System of Health Accounts (OECD 2000).
Health Expenditure Advisory Committee (HEAC)
In 2003, the AIHW established the HEAC, comprising data users and providers, to provide
advice on health expenditure reporting in Australia. The committee, which meets twice a
year, consists of representatives of Australian government agencies—DoHA, ABS, DVA,
Commonwealth Grants Commission, Medicare Australia and the Private Health Insurance
Administration Council (PHIAC)—and each state and territory health department. This
committee has now expanded to include a representative from the Ministry of Health New
Zealand, and a health economist. The terms of reference for this committee are to provide
advice to the AIHW on:
•  data sources, analysis and presentation of its estimates of health expenditure in Australia
•  integration of the AIHW’s health expenditure collections with all other Australian
sub-national and national collections, and with international frameworks and collections
of health expenditure statistics
•  longer term directions related to the reporting of expenditure on health, both within
Australia and to international bodies such as the OECD and WHO.
Government Health Expenditure National Minimum Data Set (GHE NMDS)
Under the auspices of the HEAC, the AIHW has begun developing a national minimum
dataset (NMDS) for government funded health expenditure (GHE) which will enhance the
current reporting of health expenditure data.
An NMDS is a mandated national data collection for all states and territories. It is dependent
upon national agreement to collect and supply uniform core data towards a national
collection. The most important aspect of an NMDS is the agreement between all relevant
parties. An NMDS agreement includes data standards specified using data elements, as well
as the scope for the application of those data elements (AIHW 2007c).
Current approach
Expenditure and funding data for health goods and services are published annually in the
Health expenditure Australia
reports. These data are obtained from a wide variety of sources in
the public and private sectors. The state and territory health authorities currently supply
97
 
their data to the AIHW. The current data collection instrument contains a mix of provider
(e.g. public hospitals) and function categories (e.g. mental health services).
Proposed approach for NMDS
Policy areas increasingly want health expenditure information that they can use to identify
the cost of specific programs, such as immunisation programs or mental health programs, as
well as how much was spent by providers such as hospitals.
The proposed approach comprises data provided under the GHE NMDS which will include
government expenditure data from the public, private and community sector health systems,
including expenditure on health services such as hospitals and residential care services,
patient transport, medical, other health practitioners, dental, community and public health
services, and research and administration costs and expenditure provided for health goods
such as pharmaceuticals and aids and appliances. It will also include information on the
source of public and private revenue. These data will be supplied to the AIHW by existing
data providers.
There will be four categories to capture expenditure and revenue:
•   provider/organisation
•   program/function
•   source of public and private revenue
•   economic type framework.
The first three of these categories use classifications which correspond to those used by the
OECD in its System of Health Accounts. The Economic type framework classification is an
ABS classification. Some additional classification sources have also been used:
•   ABS Australian and New Zealand Standard Industry Classification
•   ABS Government Purpose Classification
•   Australian Accounting Standards Board 1049 and 118
•   existing National Health Data Dictionary items.
Provision of data under the GHE NMDS is expected to begin from the collection period
1 July 2008 to 30 June 2009.
7.2  Definition of health expenditure
‘Health expenditure’ is the sum of expenditure on health goods and services which are used
up within a year and health-related investment which has a longer life.
Expenditure on health goods and services used up within a year includes expenditure on
health goods (medications, aids and appliances), health services (clinical interventions); and
other health services such as expenditure on public health, research and administration.
These expenditures are collectively termed recurrent expenditure. Depreciation (or capital
consumption) is part of recurrent expenditure but in these accounts only non-government
capital consumption is incorporated in recurrent expenditure. Government capital
consumption is reported separately.
98
 
Health-related investment is referred to as gross fixed capital formation or capital
expenditure. In this publication the term ‘capital expenditure’ is used.
The AIHW’s definition of health expenditure closely follows the definitions and concepts
provided by the OECD’s SHA (OECD 2000) framework. It excludes:
•
expenditure that may have a ‘health’ outcome but that is incurred outside the health
sector (such as expenditure on building safer transport systems, removing lead from
petrol, and educating health practitioners)
•
expenditure on personal activities not directly related to maintaining or improving
personal health
•
expenditure that does not have health as the main area of expected benefit.
Some of the expenditure from non-government health organisations, such as the National
Heart Foundation and Diabetes Australia is not included in these accounts. In particular, as
data are not available, most of the non-research expenditure funded by donations to these
organisations is not included.
Total health expenditure reported for Australia (both domestically and internationally) is
slightly underestimated in that it excludes health expenditure on health services provided by
the Australian Defence Force, some school health expenditure and some health expenditure
incurred by corrective services institutions in the various states and territories.
It is arguable that there is some over-estimation of health expenditure in the dental area.
Expenditure on orthodontics is included in dental expenditure, but the principal purpose of
most of this expenditure is cosmetic and health is only a secondary purpose. Thus it
probably should not be part of health expenditure. On the other hand, expenditure on
toothbrushes and toothpaste is not currently included in health expenditure but it could be
argued that the primary purpose of this expenditure is health with the secondary purpose
being personal care/hygiene.
Difficulties in separating expenditures incurred by local governments on particular health
functions from those of state and territory governments mean that these funding sources are
often combined. However, the ABS data indicate that the contribution of local governments
is relatively small.
99
 
Table 65: Areas of health expenditure used in this report
Term Definition
Public hospital  Includes public psychiatric and non-ps ychiatric hospitals.
A public hospital is a health care facility established under Commonwealth, state or
territory legislation as a
hospital
or a free-standing day procedure unit, operated by, or on
behalf of state and territory governments and authorised to provide treatment and/or care
to patients. Such hospitals are recognised under the AHCAs and they include some
hospitals, such as some denominational hospitals which are privately owned.
Public hospital services  Services provided to a patient who is treated by a public hospital (as defined above), but
excludes
, where possible, dental services, community health services, patient transport
services, public health and health research undertaken by the hospital. Can include
services provided off the hospital site such as hospital in the home dialysis or other
services.
Private hospital  A private hospital is a health care facility, established under Commonwealth, state or
territory legislation as a
hospital
or free-standing day procedure unit and authorised to
provide treatment and/or care to patients. A private hospital is not defined by whether it is
privately owned but by whether it is not a public hospital (as defined above). Private
hospital expenditure includes expenditures incurred for public patients being treated in a
private hospital under contract.
Patient transport services
Expenditure by organisations primarily engaged in providing transportation of patients by
ground or air, along with health (or medical) care. These services are often provided
during a medical emergency but are not restricted to emergencies. The vehicles are
equipped with lifesaving equipment operated by medically trained personnel. Includes
public ambulance services or flying doctor services such as Royal Flying Doctor Service
and Care Flight. Also includes patient transport programs such as patient transport
vouchers or support programs to assist isolated patients with travel to obtain specialised
health care.
(Note: Previously called ‘Ambulance and other’.
For 2003–04 onwards, this category may include patient transport expenses that are
included in the operating costs of public hospitals.
Medical services  Comprises medical services funded by the Medicare Benefits Scheme, compulsory Motor
Vehicle Third Party Insurance, Workers Compensation Insurance, Health Services
Australia and from patient out-of-pocket payments.
Includes services listed in the Medical Benefits Schedule (MBS) that are provided by
registered medic al practitioners. Most medical services in Australia are provided on a
fee-for-service basis and attract benefits from the Australian Government under Medicare.
Also includes medical services provided to private admitted patients in hospitals,
non-MBS medical services such as the provision of vaccines for overseas travel, as well
as some expenditure that is not based on a fee-for-service (i.e. alternative funding
arrangements).
Excludes medical services provided to public admitted patients in public hospitals and
medical services provided to public patients at outpatient clinics in public hospitals.
Other health practitioners  Services provided by health practitioners (other than doctors and dentists). These include
chiropractors, optometrists, physiotherapists, speech therapists, audiologists, dietitians,
podiatrists, homeopaths, naturopaths, practitioners of Chinese medicine and other forms
of traditional medicine, etc.
Medications  Comprises benefit-paid pharmaceuticals and other medications.
Benefit-paid pharmaceuticals  Pharmaceuticals in the PBS and the RPBS (see Glossary) for which the Australian
Government paid a benefit.
Other medications  Pharmaceuticals for which no PBS or RPBS benefit was paid and other medications.
Includes:
•
pharmaceuticals listed in the PBS or RPBS, the total costs of which are equal to, or
less than, the statutory patient contribution for the class of patient concerned
•
pharmaceuticals dispensed through private prescriptions that do not fulfil the
criteria for payment of benefit under the PBS or RPBS
•
over-the-counter medicines including pharmacy-only medicines, aspirin, cough and
cold medicines, vitamins and minerals, herbal and other complementary medicines,
and a range of medical non-durables, such as bandages, bandaids and condoms.
(continued)
100
 
Table 65 (continued): Areas of health expenditure used in this report
Term     Definition
Aids and appliances  Durable medical goods dispensed to ambulatory patients that are used more than
once, for therapeutic purposes, such as glasses, hearing aids, wheelchairs and
orthopaedic appliances and prosthetics that are not implanted surgically but are
external to the user of the appliance.
Excludes prostheses fitted as part of admitted patient care in a hospital.
Community health  Non-residential health services offered by establishments to patients/clients, in an
integrated and coordinated manner in a community setting, or the coordination of
health services elsewhere in the community.
Includes:
•
well baby clinics
•
health services provided to particular groups such as Aboriginal and Torres
Strait Islander people, women, youth and migrants, as well as family
planning services, alcohol and drug treatment services, etc.
•
specialised mental health programs for patients with mental illness that are
delivered in a community setting.
Public health  Services provided and/or funded by governments that are aimed at protecting and
promoting the health of the whole population or specified population subgroups
and/or preventing illness or injury in the whole population or specified population
subgroups.
Public health services do not include treatment services.
Dental services  A range of services provided by registered dental practitioners.
Includes oral and maxillofacial surgery items; orthodontic, pedodontic and
periodontic services; cleft lip and palate services; dental assessment and
treatment; and dental items listed in the MBS.
State and territory dental services  School dental programs, community dental services and hospital dental programs
funded by state and territory health authorities.
Health administration  Activities related to the formulation and administration of government and
non-government policy in health and in the setting and enforcement of standards
for health personnel and for hospitals, clinics, etc.
Includes the regulation and licensing of providers of health services.
Where possible administrative costs related to the delivery of particular health
goods and services are added to the direct expenditure on those goods and
services.
Health research  Research undertaken at tertiary institutions, in private non-profit organisations and
in government facilities that has a health socioeconomic objective.
Excludes commercially oriented research carried out or funded by private
business, the costs of which are assumed to be included in the prices charged for
the goods and services (e.g. medications that have been developed and/or
supported by research activities).
Capital expenditure  Expenditure on fixed assets (e.g. new buildings and equipment with a useful life of
more than a year).
Capital consumption  Capital consumption is otherwise known as depreciation and represents the
amount of fixed capital used up each year.
Non-specific tax expenditure  The only tax expenditure currently included here is the medical expenses tax
rebate. This becomes available to individuals to claim through the taxation system
if they have out-of-pocket medical expenses over a specified limit in an income
year. For the 2005–06 income year, the tax rebate was 20 cents for each $1 by
which a taxpayer’s net medical expenses exceeded $1,500 (the threshold).
The Australian Treasury estimates other tax expenditure in the health area, such
as the cost of exempting low income earners from the Medicare levy. These tax
expenditures are not included in the Australian NHA framework.
101
 
7.3  Data and methods used to produce estimates
General
The total expenditure and revenue data used to generate the tables are, to the greatest extent
possible, produced on an accrual basis; that is, expenditures reported for each area relate to
expenses incurred in the year in which they are reported. This is not, however, achievable in
all cases. For example, where the data on which the estimates are based are provided by a
funding source, such as the private health insurance funds, they sometimes relate to the date
of processing claims. These do not necessarily coincide with the date on which the related
service was provided. As a further consequence, the contribution of that funding source may
be understated in one year and overstated in another.
A very small part of public hospital expenditure is funded by private practitioner facility
fees. This revenue is in turn partly funded by the Medicare Benefits Scheme and that money
is reported separately in the medical services row of the health expenditure matrix.
Therefore there is a partial double count of the public hospital expenditure funded from
private practitioner facility fees and medical services.
The AIHW gathers information on which to base its estimates of health expenditure from a
wide range of sources. The ABS, the Department of Health and Ageing, and state and
territory health authorities provided most of the basic data used in this publication. Other
major data sources are the DVA, the PHIAC, Comcare, and the major workers’ compensation
and compulsory third-party motor vehicle insurers in each state and territory.
State and territory expenditure tables
The state and territory tables are intended to give some indication of differences in the
overall levels of expenditure on health in the states and territories; they do not necessarily
reflect levels of activity by state and territory governments. For example, service providers
located in the different states and territories pursue a variety of funding arrangements
involving inputs from both government and non-government sources. As a result, one state
or territory may have a mix of services and facilities that is quite different from that in
another state. The estimates will enable a state or territory government to monitor the impact
of policies on overall expenditure on health goods and services provided within its borders.
It should be noted that estimates of funding by state and local government in respect of a
particular state/territory table are derived by deducting from gross health expenditure
estimates, any Australian Government grants and other revenue received by the state and
territory health authorities. This funding relates to all funding by state/territory and local
governments on services provided in the state or territory concerned. Some of the services
concerned may actually be the subject of cross-border reimbursement arrangements between
the states and territories.
Where funding data are provided only on a national basis, as is the case for some Australian
Government programs, the AIHW calculates allocations for those expenditures by state and
territory.
102
 
State government contracting of private hospital services
At present the matrices for each state and territory prior to 2002–03 indicate that state and
territory governments provided no funding for services provided by private hospitals. This
is incorrect, because there are at least two situations in which they do provide funding for
services provided by private hospitals, namely where:
(a)  a state or territory government or an area health service has contracts with private
hospitals to provide services to public patients
(b)  a public hospital purchases services from a private hospital in respect of some of its
public patients.
The AIHW has begun to collect the first of these data flows from 2002–03 and they are
included in both the national and the state and territory matrices from that year.
The second of these flows would currently be included in total expenditure, but they would
be counted as funding for services provided by public hospitals (so long as the related
purchases are being included in the reported expenses of the purchasing hospitals in the
public hospital establishments data).
Allocation of expenditure by the Australian Government to states
and territories
The bulk of the expenditures by the Australian Government can readily be allocated on a
state and territory basis. These include:
•
specific purpose payments (SPPs) to the states and territories for health purposes
•
Medicare benefits payments
•
pharmaceutical benefit payments
•
Department of Veterans’ Affairs expenditure.
Data on other health funding by the Australian Government are generally not available on a
state and territory basis. In those cases, indicators are used to derive state and territory
estimates. For example, non-Medicare payments to medical service providers aimed at
enhancing or modifying medical practice are allocated according to the proportion of
vocationally registered general practitioners in each state or territory.
Expenditure by state, territory and local governments
The ABS produces annual estimates of public finance, which contribute information used in
the AIHW National Health Accounts. These include expenses and revenues for all levels of
government.
Until 1996–97, public finance data were reported on a cash basis. From 1997–98, reporting
has been on an accrual basis for most jurisdictions. Where states or territories have not
reported on an accrual basis, their cash accounts have been modified by the ABS to conform
to accrual definitions. State and territory data included in the ABS’s public finance database
are provided by each of the state and territory treasuries. The GPC developed by the ABS is
used to allocate expenses and revenues by function.
103
 
There have always been difficulties in accurately allocating government expenditures in the
public finance database according to purpose (function). This is particularly the case at the
lower levels of disaggregation.
Since the move to accrual-based accounting, the emphasis of the ABS and the Treasury
departments has been on ensuring that transaction-type classifications of expenditure are
correct (that is, ensuring that expenses and revenues are correctly classified in the state and
territory accounts). To date, less attention has been given to the verification of expenditure in
the public finance database according to function. As a consequence, only the ABS’s
estimates of total health expenditure by state and local governments are used in this
publication as a guide to the overall movements in state and local government recurrent
funding for health from one year to the next.
The ABS provided research expenditure data from its Research and Experimental
Development Survey series (ABS 2004a, 2004b, 2004c, 2004d, 2005a, 2006). Some of the state
allocations in the supplied 2004–05 data were derived by the ABS.
Break in series for selected areas of expenditure between 2002–03 to 2003–04
Public hospitals and public hospital services
There is a break in series due to differences in definitions of public hospital and public
hospital services between 2002–03 and 2003–04.
Prior to 2003–04, the AIHW Public Hospitals Establishments (PHE) collection data were used
to derive public hospital expenditure estimates for each state and territory. The PHE data
comprises expenditure on goods and services provided in hospitals, including expenditure
on the components of community and public health services, dental and patient transport
services and health research that are provided in public hospitals. This expenditure is
referred to as ‘public hospital’ expenditure.
In contrast, ‘public hospital services’ estimates, provided directly from the state and territory
health authorities, are reported for 2003–04 onwards and reflect the level of expenditure on
goods and services provided in hospitals, however, these estimates
exclude,
where possible,
any community and public health services, dental and patient transport services and health
research expenditure undertaken in public hospitals. These expenditures are included under
their respective categories in the health expenditure matrix. For example, patient transport
services expenditure that prior to 2003–04 was captured as part of public hospital
expenditure, would now be captured as part of patient transport services expenditure.
The AIHW PHE collection was the source of data for state and territory expenditure on
public hospitals reported in Tables 33 to 37 and Figure 13.
State and territory funding for public hospitals was derived by subtracting Australian
Government grants and any other public hospital revenue from the PHE data.
Community and public health services and dental and patient transport services
Due to the above-mentioned change in definitions for public hospitals and public hospital
services, there is a resulting break in time series between 2002–03 and 2003–04 for
community and public health services and for dental and patient transport services.
In addition, for community health services, an indeterminate amount of domiciliary care
expenditure was included in the community health services data prior to 2003–04.
Domiciliary care, which includes home and community care (HACC) funding, is considered
104
 
to be more a welfare service than a health service and for this report has been excluded
where possible from the community health services estimates.
Although valid comparisons across the discontinuity can be made for total health
expenditure, caution should be exercised when comparing data across the decade for these
four areas of expenditure.
Funding by the non-government sector
Funding by the non-government sector is shown in the various state matrices in three broad
‘source of funds’ categories:
•
health insurance funds
•
individuals
•
other non-government sources.
Health insurance funds
Funding by health insurance funds on health goods and services within a state or territory is
assumed to be equal to the level of benefits paid by health insurance funds that operate from
that state or territory. In the case of New South Wales and the Australian Capital Territory,
the NSW funds cover ACT residents. Therefore private health insurance benefits cannot
easily be split between NSW and the ACT.   Data from
Australian Hospital Statistics
is used to
separate private health insurance benefits for hospitals between the ACT and NSW, but for
non-hospital benefits, the benefits for both NSW and ACT are included in the NSW tables B1
to B3 and no benefits are included in the ACT tables B19 to B21.
Private health insurance rebates
In all years from 1997–98, funding by health insurance funds has been reduced by the extent
of the Australian Government subsidy through the Private Health Insurance Incentives
Scheme (up until the end of 1998) and the 30% rebate on private health insurance
contributions (since 1999).
Individuals
Estimates of expenditure by individuals on:
•
dental services
•
other health practitioners
•
aids and appliances
for 2002–03 onwards mostly rely on detailed private health insurance data from PHIAC. The
previous methods relied on high-level ABS data which proved to be unreliable and were
subject to substantial revisions over time. The new methodology uses the growth in the cost
of services combined with the change in proportion of the population who have ancillary
cover from year to year to project forward the individual out-of-pocket expenditure for these
categories. Funding of these services by private health insurance funds and injury
105
 
compensation insurers are deducted from these estimates to arrive at the estimates of
individuals’ out-of-pocket funding.
Estimates of expenditure by individuals on patient transport services are based on data from
the Productivity Commission’s Report on Government Services (SCRCSSP 1999 and 2003,
SCRGSP 2007) from 1997–98 onwards. Prior to 1997–98, estimates were derived from PHIAC
data.
Other non-government sources
Workers compensation and third party motor vehicle insurance payments comprise the
majority of expenditure for this category. The Institute obtains these data from the respective
injury compensation insurers in each state and territory.
Change in methodology for deflators
There are nine types of deflators (see Appendix D for more information) used in this report
(Table 66). Most deflators are very specific to the type of expenditure they are applied to. For
example, all hospitals use the government final consumption expenditure (GFCE) hospitals
and nursing homes deflator.
There are four new deflators used in this report, which replace deflators used in
Health
expenditure Australia 2004–05
(AIHW 2006a). See next page (Table 66) for further details.
106
 
Table 66: Area of health ex penditure  by type of deflator applied
Area of expenditure
Deflator applied
Public hospitals
/ Public hospital services
GFCE hospitals and nursing homes
( a )
( a )
Private hospitals
GFCE hospitals and nursing homes
Patient transport services
GFCE hospitals and nursing homes
Medical services
Medicare medical services fees charged
Dental services
Dental services
( b )
Other health practitioners
Other health practitioners
( b )
( b )
Community health and other  Professional health workers wage rate index
Public health
GFCE hospitals and nursing homes
Benefit-paid pharmaceuticals
PBS pharmaceuticals
All other medications
HFCE on chemist goods
Aids and appliances
( b )
Aids and appliances
Administration
Professional health workers wage rate index
Research
Professional health workers wage rate index
Capital expenditure
Gross fixed capital formation
Capital consumption
Gross fixed capital formation
Non-specific tax expenditure  Professional health workers wage rate index
(a)  See Box 3 for details on the distinction between public hospitals and public hospital services.
(b)   These deflators are new in this report and have replaced those used in
Health expenditure Australia 2004–05
(AIHW 2006a).
Blank cells in expenditure tables
The national and the state and territory tables in Appendixes A and B have some cells for
which there is no expenditure recorded. The reasons for this are many, but the main ones
are:
(i)      There are assumed to be no funding flows because they do not exist in the institutional
framework for health care funding.
(ii)     The total funding is so small that it rounds to less than $500,000.
(iii)    A flow of funds exists but it cannot be estimated from available data sources.
(iv)    Some cells relate to ‘catch-all’ categories and the data and metadata are of such high
quality as to enable all expenditure to be allocated to specified areas. This, in turn,
means that there is no residual to be allocated to the ‘catch-all’ categories.
As to (i), for example, there are no funding flows by the state, territory and local government
for medical services and benefit-paid pharmaceuticals because these are funded by the
Australian Government, individuals and private health insurance funds through Medicare
and the PBS.
An example of (iii) is state and local government funding for private hospitals. There are
known to be funding flows in this area because state and territory governments are known to
contract with private hospitals to provide some hospital services to public patients. Data
have been inserted in the matrices from 2002–03 onwards, but not for earlier years.
As to (iv), in some years some small miscellaneous expenditures by the Australian
Government have been allocated to the category ‘Other non-institutional n.e.c.’. These could
not, at that time, be allocated to the specific health expenditure areas in the matrix. In other
years, better quality of description may have allowed those types of expenditures to be more
107
 
precisely allocated. The expenditure category remains in order to show what total health
expenditure is over a long time period.
Population
The per person estimates of expenditure are calculated using estimates of annual mean
resident population, which are based on quarterly estimated resident population data from
the ABS (ABS 2007b). See Appendix G for further details.
7.4  Revisions of definitions and estimates
Definitions
Patient transport services
In earlier health expenditure publications, the term ‘ambulance and other’ was used instead
of ‘patient transport services’. These terms are identical in definition. See Table 65 for further
information on what comprises patient transport services.
Public and community health
In earlier health expenditure publications, public health expenditure was included with
community health expenditure because of the difficulty in obtaining reliable data about these
two categories of expenditure. These data were sourced from the ABS GFS and from the
states and territories themselves.
Separate and timely data on public health expenditure data, based on nine core public health
expenditure activities, have now become available from the AIHW’s Public Health
Expenditure Project. This project, which forms an integral part of the development of public
health information under the former National Public Health Partnership, is funded by the
DoHA. It aims to develop reliable and timely estimates of public health investment in
Australia, both in the public sector and in the non-government sector.
The data for 1999–00 to 2004–05 have been published in the AIHW’s
National public health
expenditure
reports (AIHW 2002, 2004, 2007b). Data for 2005–06 will be released later in 2007.
The estimates of public health expenditure in this report are based on the data in the
National Public Health Expenditure Project. Note that, at present, public health expenditure
data are collected only for key health departments and agencies of the Australian
Government and states and territories and includes depreciation.
Other medications
Expenditure on other medications includes expenditure on over-the-counter medicines,
complementary medicines, over-the-counter medical non-durables, as well as prescribed
medications for which no benefits are paid under the PBS or RPBS, including PBS or RPBS
items which have a price less than or equal to the co-payment (see Table 65 for further
details).
108
 
Over-the-counter medications and medical non-durables
Over-the-counter medicines and medical non-durable goods are all therapeutic goods of a
type that are sold at pharmacies or supermarkets and are used to treat or cure a condition.
These include pharmacy-only medicines. Examples of over-the-counter medicines are
analgesics, antacids and cough medicines. Examples of over-the-counter medical
non-durable goods include non-prescription therapeutic goods that tend to be single-use
items, such as bandages, elastic stockings, incontinence articles, condoms and other
mechanical contraceptive devices. Goods that are for personal use such as tanning lotion are
not considered to be therapeutic, whereas after-sun lotion to treat sunburn would be within
the scope of health expenditure.
The AIHW has obtained over-the-counter data for 2001–02 to 2004–05 from
Retail pharmacy
(Flanagan 2002a, 2004a, 2005a) and
Retail world
(Flanagan 2002b, 2003, 2004b, 2005b), having
previously obtained it from
Pharmacy 2000
(Feros 1998, 1999, 2000, 2001). Over-the-counter
supermarket and pharmacy data for 2005–06 were obtained from Retail World (Flanagan
2006) and Synovate AZTEC (unpublished data) respectively.
The change in data source has enabled a more comprehensive breakdown of each category of
products sold at pharmacies and supermarkets. For example, the estimates are now able to
include the therapeutic proportion of the total sales of mouthwash sold at supermarkets. No
data are yet available for health goods sold through retail outlets such as convenience stores
and health food stores but such expenditure constitutes a small part of total over-the-counter
sales of pharmaceuticals and medical non-durables.
Non-benefit prescriptions
Non-benefit prescription expenditure was derived from total prescription volume and the
average price of private and under co-payment scripts. These data were provided by DoHA
and the Pharmacy Guild of Australia’s pharmacy survey.
Revision of estimates
Some components of total health expenditure have been revised since the publication of
Health expenditure Australia 2004–05
(AIHW 2006a).
High-level residential aged care
In earlier editions of
Health expenditure Australia
reports, high-level residential aged care was
classified as part of health expenditure. For this report and in all subsequent reports this
expenditure is now classified as welfare expenditure and reported as part of the
Welfare
expenditure Australia
report series. The reclassification of high-level aged residential care from
health to welfare expenditure has affected the health to GDP ratio. See Executive Summary
and Chapter 6 for further details.
Private hospitals
The ABS Private Hospital Series (ABS, Cat. no. 4390.0) is the source for total spending on
private hospitals in this report. In previous reports, the ABS Private Hospital survey was the
source of the majority but not all funding on private hospitals. There were downward
revisions of total spending on private hospitals of $195 million for 2002–03, $524 million for
2003–04 and $587 million for 2004–05 from previously published estimates.
109
 
Individual out-of-pocket expenditure for dental services, other health
practitioner services, aids and appliances, all other medications and patient
transport services
A change in the methodology used to calculate individual out-of-pocket expenditure for
dental services, other health practitioner services and aids and appliances for 2002–03
onwards and patient transport services for 1997–98 onwards has resulted in substantial
revisions to all of these areas of health spending in this report. In earlier editions of
Health
expenditure Australia
, ABS HFCE estimates were used to calculate individual out-of-pocket
expenditure for these categories.
In this report for 2002–03 onwards, individual out-of-pocket expenditure on dental services,
other health practitioners and aids and appliances were calculated from PHIAC data. This
change in methodology has resulted in a $486 million increase in individual expenditure on
other health practitioner services in 2002–03 compared to a $347 million increase for 2003–04
and a $362 million increase for 2004–05. In contrast, this change in methodology has
generally resulted in large downward revisions to individual out-of-pocket expenditure on
aids and appliances. In 2003–04 this decrease was $533 million while in 2004–05 it was
$1.1 billion. The change in methodology did not have a substantial impact on individual
out-pocket-expenditure for dental services.
Revisions to non-benefit scripts expenditure for 2001–02 onwards for this report have had an
impact on individual spending estimates for all other medications. For 2002–03 there was a
decrease of $562 million, while in 2004–05 there was an increase of $309 million for
individual spending on all other medications.
For 1997–98 onwards, Productivity Commission rather than PHIAC data were used to
calculate individual out-of-pocket expenditure on patient transport services. This change in
methodology has caused a downward revision to individual spending estimates for each
year. For 2002–03 to 2004–05, $171 million, $212 million and $258 million respectively, were
the downward revisions for individual spending on patient transport services.
Revisions to state and territory estimates of health expenditure
The Institute received revised data from the Northern Territory health authority that has
resulted in revisions to Northern Territory funding of recurrent health expenditure for
2002–03 to 2004–05. There was a downwards revision of $18 million for 2002–03, an upward
revision of $112 million for 2003–04 and an upward revision of $37 million for 2004–05.
State government funding and individual out-of-pocket funding for public hospital services
has been revised for New South Wales and Victoria to ensure that the public hospital
services expenditure and revenue data included in this report for 2003–04 onwards was
based on data received from the state and territory health authorities. For New South Wales
this resulted in an increase in state government funding and a decrease in out-of-pocket
funding of public hospital services for 2003–04 and 2004–05. For Victoria this resulted in a
decrease for both state government funding and out-of-pocket funding of public hospital
services in 2003–04 and 2004–05. Prior to 2003–04, the AIHW Public Hospitals Establishments
collection was the main source for public hospitals expenditure data.
Domiciliary care services expenditure that was previously reported as part of community
health services expenditure by the state and territory health authorities has been removed
where possible from 2003–04 data onwards. Domiciliary care has more of a welfare than a
health purpose and consequently will be repo rted as part of the
Welfare expenditure Australia
110
 
report series. As a result of this reclassification, there are quite large downward revisions for
community health services funding by state and territories for 2003–04 onwards in this
report. In 2004–05, the decrease was $428 million while in 2003–04 it was $471 million.
Premium rebates claimed through the taxation system
In
Health expenditure Australia 2004–05
(AIHW 2006a), premium rebates for 2004–05 that were
claimed through the taxation system were reported to be $314 million. This preliminary
estimate has been revised down to $155 million in this report. The large difference in the
amount was due to moving from a cash accounting to an accrual accounting basis. The
preliminary estimate for 2004–05 contained the amount for both cash and accrual as this was
the year the change occurred. This meant there was effectively a double count of the expense
amount in 2004–05 from bringing forward the accrual amount.
Summary of revisions to expenditure estimates following the release of
Health
expenditure Australia 2004–05
These were the revisions to total health expenditure from 1998–99 onwards (Table 67).
Table 67: Comparison of previously published estimates of total health
expenditure, current prices, 1998–99 to 2004–05, with current estimates
($ million)
Year Previous estimate Revised estimate  Change
1998–99  51,419 48,502  –2,917
1999–00  54,916 52,442  –2,474
2000–01  61,618 58,287  –3,331
2001–02  67,132 63,448  –3,684
2002–03  73,108 68,932  –4,176
2003–04  79,114 73.945  –5,169
2004–05  87,296 81,125  –6,171
Source:
AIHW health expenditure database.
Revision of 1998–99 estimates
Overall, the estimates of health expenditure for 1998–99 were reduced by $2,917 million.
Reclassification of high-level residential aged care to welfare removed $3,706 million.
There was an upwards revision of $507 million to capital expenditure and an upwards
revision of $355 million to community health.
Revision of 1999–00 estimates
Overall, the estimates of health expenditure for 1999–00 were reduced by $2,474 million.
Reclassification of high-level residential aged care to welfare removed $3,737 million.
The major areas of revision were:
•
capital expenditure (up $841 million)
•
community health (up $446 million)
•
other health practitioners (up $87 million)
•
administration (down $44 million).
111
 
Revision of 2000–01 estimates
Overall, the estimates of health expenditure for 2000–01 were reduced by $3,331 million.
Reclassification of high-level residential aged care to welfare removed $3,890 million.
The major areas of revision were:
•
capital expenditure (up $827 million)
•
private hospitals (down $108 million)
•
patient transport services (down $98 million)
•
administration (down $58 million).
Revision of 2001–02 estimates
Overall, the estimates of health expenditure for 2001–02 were reduced by $3,684 million.
Reclassification of high-level residential aged care to welfare removed $4,140 million.
The major areas of revision were:
•
capital expenditure (up $531 million)
•
other health practitioners (up $264 million)
•
aids and appliances (up $172 million)
•
patient transport services (down $137 million)
•
dental services (down $131 million)
•
all other medications (down $88 million)
•
private hospitals (down $87 million).
Revision of 2002–03 estimates
Overall, the estimates of health expenditure for 2002–03 were reduced by $4,176 million.
Reclassification of high-level residential aged care to welfare removed $4,548 million.
The major areas of revision were:
•
capital expenditure (up $914 million)
•
all other medications (down $563 million)
•
other health practitioners (up $485 million)
•
private hospitals (down $195 million)
•
patient transport services (down $168 million)
•
dental services (down $143 million)
•
aids and appliances (up $116 million).
Revision of 2003–04 estimates
Overall, the estimates of health expenditure for 2003–04 were reduced by $5,169 million.
Reclassification of high-level residential aged care to welfare removed $5,072 million.
The major areas of revision were:
•
capital expenditure (up $897 million)
•
aids and appliances (down $532 million)
112
 
•
private hospitals (down $524 million)
•
community health and other (down $494 million)
•
other health practitioners (up $344 million).
Revision of 2004–05 estimates
Overall, the estimates of health expenditure for 2004–05 were reduced by $6,171 million.
Reclassification of high-level residential aged care to welfare removed $5,586 million.
The major areas of revision were:
•
aids and appliances (down $1,012 million)
•
capital expenditure (up $838 million)
•
private hospitals (down $587 million)
•
community health and other (down $584 million)
•
other health practitioners (up $344 million)
•
all other medications (up $307 million).
113
 
Appendix tables
Note:
Components in some appendix tables may not add to totals due to rounding.
114
 
Appendix A: National health expenditure
matrices, 2003–04 to 2005–06
115

 

 

 
 
Notes to Appendix A tables
(a)  Tables show funding provided by the Australian Government, state and territory
governments and local government authorities and by the major non-government
sources of funding for health care. They do not show gross outlays on health goods
and services by the different service provider sectors.
(b)  Includes the 30% rebate on health insurance premiums that can be claimed either
directly from the Australian Government through the taxation system or it may
involve a reduced premium being charged by the private health insurance fund (with
a subsequent reimbursement to the fund by the Australian Government).
(c)  ‘Other’ includes expenditure on health goods and services by workers’ compensation
and compulsory third-party motor vehicle insurers as well as other sources of income
(for example, interest earned) for service providers.
(d)  Public hospital services (2003–04 to 2005–06) excludes any dental services,
community health services, patient transport services, public health and health
research undertaken by the hospital. Can include services provided off the hospital
site such as hospital in the home dialysis or other services.
(e)  ‘Other’ denotes ‘other non-institutional n.e.c.’.
(f)  Non-government capital consumption (depreciation) is incorporated in recurrent
expenditure.
(g)  Total health expenditure has not been adjusted for the funding of non-specific tax
expenditure.
(h)  Constant price health expenditure for 1995–96 to 2005–06 is expressed in terms of
2004–05 prices.
(i)  Public hospitals (1995–96 to 2002–03) includes any dental services, community health
services, patient transport services, public health and health research undertaken by
the hospital. Can include services provided off the hospital site such as hospital in the
home dialysis or other services.
Note:   Due to changes in methods, care must be taken comparing the growth between
2002–03 and 2003–04 (see section 7.3 in the Technical notes for further information).
125
 
Appendix B: State and territory health
expenditure matrices, 2003–04 to 2005–06
126

 

 

 

 

 

 

 

 

Notes to Appendix B tables
(a)  Tables show funding provided by the Australian Government, state and territory
governments and local government authorities and by the major non-government
sources of funding for health goods and services. They do not show gross outlays on
health services by the different service provider sectors.
(b)  ‘Other’ includes expenditure on health goods and services by workers’ compensation
and compulsory motor vehicle third-party insurers as well as other sources of income
(for example, interest earned) of service providers.
(c)  Public hospital services excludes any dental services, community health services,
patient transport services, public health and health research undertaken by the
hospital. Can include services provided off the hospital site such as hospital in the
home dialysis or other services.
(d)  ‘Other’ denotes ‘other non-institutional n.e.c.’.
(e)  Non-government capital consumption (depreciation) is included as part of recurrent
expenditure.
(f)  Total health expenditure has not been adjusted for the funding of non-specific tax
expenditure.
Note:  Benefits paid by private health insurance funds to ACT residents for non-hospital
services are included in the NSW tables, B1 to B3, and not in the ACT tables, B19 to
B21, as the NSW and ACT benefits are not able to be separated.
152
 
Appendix C: Detailed disaggregation of
selected areas of health expenditure,
2004–05
153
 
Table C1: Hospital expenditure, current prices, by area of expenditure,
2004–05  ($ million)
Area of expenditure  Total expenditure
Total hospitals
28,418
Admitted patients
21,474
Same day admissions
4,983
Curative care
4,964
Rehabilitative care
16
Long-term care
1
Palliative care
1
Other n.e.c.
2
Overnight admissions
16,491
Curative care
14,344
Rehabilitative care
1,130
Long-term care
781
Palliative care
202
Other n.e.c.
36
Non-admitted patients
9,791
Public hospital services
22,091
( a )
Admitted patients
15,464
Same day admissions
3,352
Curative care
3,345
Rehabilitative care
5
Long-term care
—
Palliative care
1
Other n.e.c.
1
Overnight admissions
12,111
Curative care
10,325
Rehabilitative care
847
Long-term care
742
Palliative care
169
Other n.e.c.
29
Non-admitted patients
6,627
Private hospitals
6,327
Admitted patients
6,011
Same day admissions
1,631
Curative care
1,618
Rehabilitative care
10
Long-term care
1
Palliative care
—
Other n.e.c.
1
Overnight admissions
4,380
Curative care
4,019
Rehabilitative care
283
Long-term care
38
Palliative care
33
Other n.e.c.
7
Non-admitted patients
3,163
Notes:
See page 156.
154

Notes to Appendix C tables
(a)
Public hospital services excludes dental services, community health services, patient
transport services, public health and health research undertaken by the hospital. Can
include services provided off the hospital site such as hospital in the home dialysis or
other services. See Box 3 for details on distinction between public hospitals and
public hospital services.
(b)  Tables show funding provided by the Australian Government, state and territory
governments and local government authorities and by the major non-government
sources of funding for health care. They do not show gross outlays on health goods
and services by the different service provider sectors.
(c)  Includes the 30% rebate on health insurance premiums that can be claimed either
directly from the Australian Government through the taxation system or it may
involve a reduced premium being charged by the private health insurance fund
(with a subsequent reimbursement to the fund by the Australian Government).
(d)  ‘Other’ includes expenditure on health goods and services by workers’ compensation
and compulsory third-party motor vehicle insurers as well as other sources of income
(for example, interest earned) for service providers.
156
 
Appendix D: Price indexes and deflation
This report uses price indexes in several ways:
•  Some indexes are presented as variables of interest in their own right. For example,
Table 5 compares the rates of health inflation with general (or economy-wide) inflation
and computes a measure of ‘excess health inflation’.
•  Also, price indexes are used to compute constant price health expenditure aggregates
(also called ‘real’ or ‘volume’ expenditures) from their current price counterparts.
Computations of these kinds allow one to abstract from the effects of price change. For
example, Table 3 and Figure 3 compare the growth in real health expenditure with that
in real GDP over the past decade.
Price indexes
There is a wide variety of price indexes for the Australian health sector, and these may be
distinguished in several ways:
•  By the scope of the index—the economic variable to which the price indexes refer (such
as all health expenditure, consumption, capital expenditure and so on); the economic
agents over which the indexes are aggregated (such as all agents, households, all
government, state and territory governments and so on); or by the segment of health
services to which the indexes refer (such as all health services, medical services,
pharmaceuticals and so on).
•  By the technical manner in which the indexes are constructed—such as implicit price
deflators (IPDs) or directly computed indexes (base-weighted, current-weighted or
symmetric indexes; chained or unchained indexes and so on).
Different indexes are appropriate for different analytical purposes. For this report, the AIHW
prefers indexes whose scope matches, say, the particular health services being analysed
rather than broad-brush indexes that cover all health services. Chain indexes, which give
better measures of pure price change, are preferred to, say, IPDs. But the suite of available
indexes is not always ideal, and in some cases it has been necessary to resort to proxies for
the preferred indexes.
Deflation and constant price expenditure aggregates
Expenditure aggregates in this report are expressed in current price terms, constant price
terms or both. The transformation of a current price aggregate into its constant price
counterpart is called ‘deflation’ and the price indexes used in this transformation are called
‘deflators’. The analytical benefit of a constant price estimate (of, say, expenditure on health
goods, health services or capital) lies in the fact that the effects of price change have been
removed to provide a measure of the volume of the goods, services or capital.
A variety of general price indexes or price indexes specific to health might be used to deflate
current price aggregates into constant price terms. These include chain price indexes, IPDs
and fixed-weight indexes such as the consumer price index (CPI) or its components. For this
report, deflation has been undertaken using chain price indexes and IPDs only.
157
 
The chain price indexes used in this report are annually re-weighted Laspeyres
(base period weighted) chain price indexes. The indexes are calculated at a detailed level,
and they provide a close approximation to measures of pure price change. In this report, the
chain price indexes have been used for deflation of such expenditure aggregates as:
•
institutional services and facilities that are provided by or purchased through the public
sector
•
capital expenditure and capital consumption.
Some other constant price aggregates in this report have been derived using IPDs, when a
directly constructed chain index is not available. An IPD is an index obtained by dividing a
current price value by its corresponding chain volume estimate. Thus, IPDs are implicit
rather than directly computed measures of price; they are not measures of pure price change
as they are affected by compositional changes. The IPD for GDP is the broadest measure of
price change available in the national accounts; it provides an indication of the overall
changes in the prices of goods and services produced in Australia.
Neither the CPI nor its health services subgroup is appropriate for measuring movements in
overall prices of health goods and services, or for deflating macro expenditure aggregates.
This is because the CPI measures movements in the prices faced by households only. The
overall CPI and its components do not, for example, include government subsidies, benefit
payments and non-marketed services provided by governments.
Table D1 shows the indexes used to derive constant price expenditures for this report. Half
of the indexes are sourced from the ABS, while the IPDs for Medicare medical services fees
charged, PBS pharmaceuticals, dental services, other health practitioners, aids and
appliances, and the total health price index, have been derived by the AIHW.
Change in methodology
The professional health workers wage rate IPD, sourced from the ABS, has replaced the IPD
for total non-defence government final consumption expenditure. The wage rate index is
used to derive constant price expenditures for community health services, health
administration, health research and non-specific tax expenditures.
There are also new indexes for dental services, other health practitioners and aids and
appliances that have been derived by the AIHW. Previously, for these areas of expenditure,
ABS indexes for HFCE on dental services, doctors and other health practitioners and
medicines, aids and appliances were used.
158

 
Appendix E: Capital in the Australian
health sector
AIHW publications present some information on capital. For example:
•
Health expenditure Australia
shows time series of capital expenditure and consumption
(depreciation). These series are derived from ABS national accounts data.
•
Australian hospital statistics
shows estimates of depreciation for public acute and
psychiatric hospitals in each state and territory. These estimates are derived from public
hospital establishments’ data.
Those who analyse the economics of health in Australia would like integrated capital
accounts—covering investment, re-evaluation of assets and depreciation. Ideally, these
estimates would be dissected by segment of health, by state or territory, and by
public/private sector.
161
 
Appendix F: Cross-border flows
Cross-border flows are defined as expenditures incurred by and revenues received for
individual states and territories in respect of patients whose usual residence is not within the
state or territory in which the expenditure is incurred. Such expenditures can result in
funding transfers between the states and territories concerned. In the most recent
Australian
hospital statistics 2005–06
report (AIHW 2007a) a table was included that showed a notional
estimate of cross-border flows (based on Diagnostic Related Groups) between jurisdictions,
for public patients, by state and territory of usual residence (see Table 7.10, p. 154).
Currently the
Health expenditure Australia
publications contain estimates of the amounts spent
on the public hospitals located in each state and territory. They do not show estimates of the
expenditure incurred by each state and territory government for hospital services for
residents of that state or territory.
In future
Health expenditure Australia
publications it is proposed to include data on gross
expenditures incurred and revenues received by individual states and territories for
admitted patients whose usual residence is not within the state or territory in which the
expenditure is incurred. These data would be accrual based and represent a move towards
reporting on the basis of the state or territory of the usual residence of the patient.
Expenditure would also continue to be reported on the basis of the state or territory where
the expenditure occurred.
162
 
Appendix G: Mean resident population
The mean resident population is the population used internationally, such as by the OECD,
to derive per capita GDP. By examining health expenditure on a per person basis, the
influence of changes in the overall size of the population is removed from the analysis.
At the national level, GDP is the main measure used to indicate the overall level of economic
activity. It is also a principal measure used to assist international comparisons of the relative
sizes and growth rates of different countries’ health sectors. The ratio of Australia’s health
expenditure to GDP (health to GDP ratio) provides an indication of the proportion of overall
economic activity contributed by the health sector.
The mean resident population (mean population) is calculated using quarterly estimated
resident population data from the ABS according to the following formula:
mean population = a + 4b + 2c + 4d +e
12
where a is the population at the end of the quarter immediately preceding the 12-month
period, and b, c, d and e are the populations at the end of each of the four succeeding
quarters. The weights used in the formulation of the mean annual population have been
derived using a mathematical technique which involves the fitting of two quadratic
polynomial functions to a series of points (ABS 1997, p38).
Table G1: Australian mean resident
population, 1995–96 to 2005–06
Year Population (’000)
1995–96  18,194.8
1996–97
18,422.6
1997–98
18,617.0
1998–99  18,820.9
1999–00
19,043.9
2000–01  19,284.1
2001–02  19,538.7
2002–03  19,781.7
2003–04  20,026.1
2004–05  20,275.2
2005–06  20,559.8
Source:
AIHW health expenditure database.
163
 
Table G2: Mean resident population, by state a nd te rritory, 1996–97 to 2005–06 (‘000)
Year NSW Vic Qld WA SA Tas ACT NT Australia
1996–97  6,244.0 4,580.7 3,368.1 1,781.3 1,477.7  474.3  309.1  184.5 18,422.6
1997–98  6,309.2 4,618.1 3,422.2 1,808.9 1,485.6  472.9  309.1  188.4 18,617.0
1998–99  6,376.2 4,663.1 3,474.2 1,837.1 1,493.7  471.8  310.8  191.3 18,820.9
1999–00
6,449.8 4,715.3 3,531.4 1,863.2 1,502.1  471.6  313.8  194.2 19,043.9
2000–01  6,531.0 4,774.0 3,594.4 1,888.5 1,508.4  471.5  317.1  196.5 19,284.1
2001–02  6,605.9 4,835.4 3,672.2 1,914.4 1,516.5  472.3  320.9  198.5 19,538.7
2002–03  6,652.9 4,895.4 3,767.4 1,938.5 1,526.3  475.0  324.1  199.4 19,781.7
2003–04  6,692.5 4,956.1 3,862.7 1,968.2 1,536.3  480.7  326.2  200.9 20,026.1
2004–05  6,732.7 5,019.4 3,956.4 2,000.0 1,546.6  484.8  328.5  204.3 20,275.2
2005–06  6,789.0 5,091.0 4,048.9 2,038.6 1,560.5  488.5  332.2  208.7 20,559.8
Source:
AIHW health expenditure database.
Table G3: Annual population growth, by state and territory, 1996–97 to 2005–06 (per cent)
Period NSW Vic Qld WA SA Tas ACT NT Australia
1996–97 to 1997–98  1.0 0.8 1.6 1.5 0.5 –0.3  — 2.1  1.1
1997–98 to 1998–99  1.1 1.0 1.5 1.6 0.5 –0.2 0.6 1.5  1.1
1998–99 to 1999–00  1.2 1.1 1.6 1.4 0.6  — 0.9 1.5  1.2
1999–00 to 2000–01  1.3 1.2 1.8 1.4 0.4  — 1.1 1.2  1.3
2000–01 to 2001–02
1.1 1.3 2.2 1.4 0.5 0.2 1.2 1.0  1.3
2001–02 to 2002–03
0.7 1.2 2.6 1.3 0.6 0.6 1.0 0.5  1.2
2002–03 to 2003–04
0.6 1.2 2.5 1.5 0.7 1.2 0.6 0.7  1.2
2003–04 to 2004–05
0.6 1.3 2.4 1.6 0.7 0.9 0.7 1.7  1.2
2004–05 to 2005–06
0.8 1.4 2.3 1.9 0.9 0.8 1.1 2.2  1.4
Average annual growth rate
1997–98 to 2002–03
1.1 1.2 1.9 1.4 0.5 0.1 1.0 1.1  1.2
1996–97 to 2005–06  0.9 1.2 2.1 1.5 0.6 0.3 0.8 1.4  1.2
Source:
AIHW health expenditure database.
164
 
Glossary
Accrual accounting  The method of accounting now most commonly used by
governments in Australia. Relates expenses, revenues and
accruals to the period in which they are incurred (see also
Cash accounting).
Admitted patient  A patient who undergoes a hospital’s formal admission
process to receive treatment and/or care. This treatment
and/or care are provided over a period of time and can
occur in hospital and/or in the person’s home (for
hospital-in-the-home patients).
Aids and appliances  See Table 65.
Australian Government
Expenses incurred by the Department of Health and
administered expenses
Ageing in administering resources on behalf of the
government to contribute to the specified outcome (for
example, most grants in which the grantee has some
control over how, when and to whom funds can be
expended, including Public Health Outcome Funding
Agreement payments and Specific purpose payments to
state and territory governments) (see also Australian
Government departmental expenses).
Australian Government
Those expenses incurred by the Department of Health and
departmental expenses
Ageing in the production of the department’s outputs. This
mostly consists of the cost of employees but also includes
suppliers of goods and services, particularly those where
the Australian Government retains full control of how,
when and to whom funds are to be provided.
Australian Government
Total expenditure actually incurred by the Australian
expenditure
Government on its own health programs. It does not
include the funding provided by the Australian
Government to the states and territories by way of grants
under section 96 of the Constitution.
Australian Government funding  The sum of Australian Government expenditure and
section 96 grants to states and territories. This also includes
the 30% Private Health Insurance premiums rebates.
Australian Health Care
The Australian Government, via a series of five-year
agreements, provides funding to each state and territory to
Agreements
support the provision of free public hospital services and
some related state health services to all Australians. See
Box 4 for details.
Average annual growth rate  To calculate the average annual growth rate in, for
example, health expenditure between 1995–96 and 2005–06
you would apply the following formula:
(($million in 2005–06/$million in 1995–96)^(1/10)–1)*100.
Benefit-paid pharmaceuticals  See Table 65.
165
 
Capital consumption  See Table 65.
Capital expenditure  See Table 65. This term is used in this publication to refer
to what the ABS call Gross fixed capital formation. See next
entry.
Capital formation  Gross fixed capital formation is the value of acquisitions
less disposals of new or existing fixed assets. Assets consist
of tangible or intangible assets that have come into
existence as outputs from processes of production, and
that are themselves used repeatedly or continuously in
other processes of production over periods of time longer
than one year. See
Australian national accounts: concepts,
sources and methods
(ABS cat. no. 5216.0, November 2000)
for further details.
Cash accounting  Relates receipts and payments to the period in which the
cash transfer actually occurred. Does not have the capacity
to reflect non-cash transactions, such as depreciation (see
also Accrual accounting).
Community health  See Table 65.
Constant prices  Constant price expenditure adjusts current prices for the
effects of inflation, that is, it aims to remove the effects of
inflation. Constant price estimates for expenditure
aggregates have been derived using either the annually
re-weighted chain price indexes produced by the ABS or
either ABS or AIHW implicit price deflators (IPDs). The
reference year for both the chain price indexes and the
IPDs is 2004–05 in this report. Constant price estimates
indicate what expenditure would have been had 2004–05
prices applied in all years. Hence, expenditures in different
years can be compared on a dollar for dollar basis, using
this measure of changes in the volume of health goods and
services.
Current prices  The term ‘current prices’ refers to expenditures reported
for a particular year, unadjusted for inflation. So changes
in current price expenditures reflect changes in both price
and volume.
Dental services  See Table 65.
Excess health inflation  The difference where the health inflation rate exceeds the
general inflation rate, that is, the rate of increase in the
price of goods and services in the health care sector
exceeds the rate of increase in the price of goods and
services in the economy as a whole.
General inflation  The increase in the general price level of goods and
services in the economy.
166
 
Government Finance Statistics  Provides details of revenues, expenses, cash flows, assets
and liabilities of the Australian public sector and
comprises units which are owned and/or controlled by
the Australian Government, state and territory
governments and local governments. See ABS 2005b for
further details.
Government Purpose
An ABS classification that classifies current outlays,
Classification
capital outlays and selected other transactions of the
non-financial public sector in terms of the government
purposes for which the transactions are made. See
ABS 2005b for further details.
Gross domestic product (GDP)  A statistic commonly used to indicate national income. It
is the total market value of goods and services produced
within a given period after deducting the cost of goods
and services used up in the process of production but
before deducting allowances for the consumption of
fixed capital.
Health administration  See Table 65.
Health inflation  The increase in the price level of goods and services
in the health sector.
Health research  See Table 65.
Highly specialised drugs  Under Section 100 of the National Health Act, certain
drugs can only be supplied to community patients
through hospitals because only the hospitals can provide
the facilities or staff necessary to oversee the appropriate
use of the drugs. These drugs are funded by the
Australian Government.
Household final consumption
Net expenditure on goods and services of a current
expenditure
nature by households and by private non-profit
institutions serving households.
Injury compensation insurers  Workers’ compensation and compulsory third-party
motor vehicle insurers.
Inpatient   An OECD term that roughly equates with the Australian
‘admitted patient’ classification (see Admitted patient).
Institutional health   Includes expenditure on hospitals (both public and
private) and patient transport services.
Jurisdictions  Australian, state, territory and local governments.
Local government  A public sector unit where the political authority
underlying its function is limited to a local government
area or other region within a state or territory, or the
functions involve policies that are primarily of concern
at the local level.
167
 
Medical durables  Therapeutic devices, such as glasses, hearing aids and
wheelchairs that can be used more than once.
Medical services  See Table 65.
Medications   Comprises benefit-paid pharmaceuticals and other
medications.
Nominal expenditure  Expenditure expressed in terms of current prices.
Non-admitted patient  Patients who receive care from a recognised
non-admitted patient service/clinic of a hospital.
Non-institutional health   Includes expenditure on medical services, other health
practitioners, medications (including benefit paid and all
other medications), aids and appliances, community
health, public health, dental services, administration,
research and other non-institutional health n.e.c.
Non-specific tax expenditure  See Table 65.
Other health practitioners  See Table 65.
Other medications  See Table 65.
Other non-institutional health
Miscellaneous expenditures that could not, at that time,
n.e.c.
be allocated to the specific ‘non-institutional’ health
expenditure areas in the matrix. In other years, better
quality of description may have allowed those types of
expenditures to be more precisely allocated. The
expenditure category remains in order to show those
data over long time series.
Outpatient  An OECD term that roughly equates with the Australian
‘non-admitted patient’ classification (see above).
Over-the-counter medicines Therapeutic medicinal preparations that can be
purchased from pharmacies and supermarkets.
Over-the-counter therapeutic
Non-prescription therapeutic goods that tend to be
medical non-durables
single-use items, such as bandages, elastic stockings,
condoms and other mechanical contraceptive devices,
from pharmacies or supermarkets.
Patient transport services  See Table 65.
Pharmaceutical Benefits Scheme
A national, government-funded scheme that subsidises
(PBS)
the cost of a wide range of pharmaceutical drugs, and
that covers all Australians to help them afford standard
medications.
Private Health Insurance
The PHIIS, which was introduced 1 July 1997, sought to
Incentives Scheme (PHIIS)
encourage more people to take out private health
insurance by providing a subsidy to low-income earners
who did, and a tax penalty to high-income earners who
did not. Middle-income earners were not the target of
this policy and as such they were neither eligible for the
tax subsidy nor liable to incur a tax penalty regardless of
their private health insurance status. The scheme ceased
operation on 31 December 1998.
168
 
Private hospital  See Table 65.
Private patient  A person admitted to a private hospital, or a person
admitted to a public hospital who is treated by a doctor
of their own choice and/or who has private ward
accommodation. This means that the patient
will be charged for medical services, food and
accommodation.
Public health  See Table 65.
Public health activities  Nine types of activities undertaken or funded by the key
jurisdictional health departments that address issues
related to populations, rather than individuals. These
activities comprise:
•
communicable disease control
•
selected health promotion
•
organised immunisation
•
environmental health
•
food standards and hygiene
•
breast cancer screening
•
cervical screening
•
prevention of hazardous and harmful drug use
•
public health research.
These activities do not include treatment services.
Public hospital  See Table 65.
Public hospital services  See Table 65.
Public (non-psychiatric) hospitals  See Table 65.
Public patient  A patient admitted to a public hospital who is treated by
doctors of the hospital’s choice and accepts shared ward
accommodation if necessary. This means that the patient
is not charged.
Purchasing power parity  This exchange rate is one which adjusts for differences in
the prices of goods and services between countries. It
shows how much the same good or service will cost
across countries.
Real expenditure  Expenditure expressed in terms which has been adjusted
for inflation (for example, in 2004–05 dollars). This
enables comparisons to be made between expenditures
in different years.
169
 
Rebates of health insurance
There are two types of rebates of health insurance
premiums
premiums. This sometimes causes confusion.
The first rebate is where the 30% rebate is taken as a
reduced premium payable by the individual with
private health cover (with the health funds being
reimbursed by the Australian Government).
The second rebate is taken as an income tax rebate,
where individuals with private health cover elect to
claim through the tax system at the end of the financial
year for the 30% rebate, having paid the health funds
100% of their premiums up front.
Recurrent expenditure  Expenditure incurred by organisations on a recurring
basis, for the provision of health services. This excludes
capital expenditure. In the Australian health accounts it
also excludes government depreciation (capital
consumption).
Repatriation Pharmaceutical
This scheme provides assistance to eligible veterans
Benefits Scheme (RPBS)
(with recognised war or service-related disabilities) and
their dependants for both pharmaceuticals listed on the
PBS and a supplementary repatriation list, at the same
cost as patients entitled to the concessional payment
under the PBS.
Specific-purpose payments (SPPs)  Australian Government payments to the states and
territories under the provisions of section 96 of the
Constitution, to be used for purposes specified in
agreements between the Australian Government and
individual state and territory governments. Some are
conditional on states and territories incurring a specified
level or proportion of expenditure from their own
resources.
State and territory dental services  See Table 65.
Therapeutic  Having to do with the treating or curing of a disease.
Total health price index  The ratio of total health expenditure in current prices to
total health expenditure in chain volume terms.
170
 
References
ABS (Australian Bureau of Statistics) 1997. Australian demographic statistics,
December quarter 1997. Cat. no. 3101.0. Canberra: ABS.
ABS 2004a. Research and experimental development all sector summary 2002–03.
Cat. no. 8112.0. Canberra: ABS.
ABS 2004b. Research and experimental development businesses 2002–03. Cat. no. 8104.0.
Canberra: ABS.
ABS 2004c. Research and experimental development higher education organisations 2002.
Cat. no. 8111.0. Canberra: ABS.
ABS 2004d. Research and experimental development government and private non-profit
organisations 2002–03. Cat. no. 8109.0. Canberra: ABS.
ABS 2005a. Research and experimental development businesses 2003–04. Cat. no. 8104.0.
Canberra: ABS.
ABS 2005b. Australian system of government finance statistics: concepts, sources and
methods. Cat. no. 5514.0. Canberra: ABS.
ABS 2006. Research and experimental development higher education organisations 2004.
Cat. no. 8111.0. Canberra: ABS.
ABS 2007a. National income, expenditure and product, March quarter 2007. Cat. no. 5206.0.
Canberra: ABS.
ABS 2007b. Australian demographic statistics, December quarter 2006. Cat. no. 3101.0.
Canberra: ABS.
AGD (Attorney-General’s Department) 1953. National Health Act 1953. Canberra: AG.
AGD 1954. Aged or Disabled Persons Care Act 1954. Canberra: AG.
AGD 1974. Nursing Homes Assistance Act 1974. Canberra: AG.
AGD 1997. Aged Care Act 1997. Canberra: AG.
AIHW (Australian Institute of Health and Welfare) 2002. National public health expenditure
report 1999–00. Cat. no. HWE 22. Canberra: AIHW.
AIHW 2004. National public health expenditure report 2000–01. Cat. no. HWE 25.
Canberra: AIHW.
AIHW 2006a. Health expenditure Australia 2004–05. Cat. no. HWE 35. Canberra: AIHW.
AIHW 2006b. National public health expenditure report 2001–02 to 2003–04.
Cat. no. HWE 33. Canberra: AIHW.
AIHW 2007a. Australian hospital statistics 2005–06. Cat. no. HSE 50. Canberra: AIHW.
AIHW 2007b. National public health expenditure report 2004–05. Cat. no. HWE 36.
Canberra: AIHW.
AIHW 2007c. A guide to data development. Cat. no. HWI 94. Canberra: AIHW.
AIHW (in press). Welfare expenditure report 2005–06. Canberra: AIHW.
Australian Taxation Office 2006. 2005–06 Commissioner of Taxation annual report. Canberra:
ATO.
171
 
DCSH (Australian Department of Community Services and Health) 1986. Nursing Homes
and Hostels Review. Canberra: AGPS.
DoHA (Australian Government Department of Health and Ageing) 2004. Annual report
2003–04. Canberra: DoHA.
DoHA 2005a. Annual report 2004–05. Canberra: DoHA.
DoHA 2005b. The Residential care manual 2005. Canberra: DoHA.
DoHA 2006. Annual report 2005–06. Canberra: DoHA.
DoHA 2007. Aged Care Funding Instrument (ACFI): user guide. Canberra: DoHA. Viewed
23 January 2007,
<http://www.health.gov.au/internet/wcms/publishing.nsf/Content/ageing-acfi-
latestnews.htm>.
Feros P (ed.) 1998. Pharmacy 2000: management and marketing for pharmacists. Issue no. 3.
Sydney: Pharmacy Works.
Feros P (ed.) 1999. Pharmacy 2000: management and marketing for pharmacists. Issue no. 3.
Sydney: Pharmacy Works.
Feros P (ed.) 2000. Pharmacy 2000: management and marketing for pharmacists. Issue no. 3.
Sydney: Pharmacy Works.
Feros P (ed.) 2001. Pharmacy 2000: management and marketing for pharmacists. Issue no. 3.
Sydney: Pharmacy Works.
Flanagan B (ed.) 2002a. Retail pharmacy: keeping you ahead of the rest. Vol. 11, no. 6.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2002b. Retail world: food & grocery for the new millennium. Vol. 55, no. 24.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2003. Retail world: food & grocery for the new millennium. Vol. 56, no. 24.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2004a. Retail pharmacy: keeping you ahead of the rest. Vol. 13, no. 6.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2004b. Retail world: food & grocery for the new millennium. Vol. 57, no. 24.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2005a. Retail pharmacy: keeping you ahead of the rest. Vol. 14, no. 6.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2005b. Retail world: food & grocery for the new millennium. Vol. 58, no. 24.
Sydney: Agency Printing (Aust) Pty Ltd.
Flanagan B (ed.) 2006. Retail world: food & grocery for the new millennium. Vol. 59, no. 24.
Sydney: Agency Printing (Aust) Pty Ltd.
House of Representatives Standing Committee on Expenditure 1982. In a home or at home:
accommodation and home care for the aged. Canberra: The Parliament of the
Commonwealth of Australia.
OECD (Organisation for Economic Cooperation and Development), the European
Commission, United Nations and International Monetary Fund (IMF) 1994. System of
National Accounts 1993. New York: United Nations.
OECD 2000. A system of health accounts, version 1.0. Paris: OECD.
172
 
OECD 2007. OECD health data 2007. Paris: OECD.
PHIAC (Private Health Insurance Administration Council) 2004. Annual report 2003–04.
Canberra: AusInfo.
PHIAC 2005. Annual report 2004–05. Canberra: AusInfo.
PHIAC 2006. Annual report 2005–06. Canberra: AusInfo.
PHIAC 2007. PHIAC A quarterly reports. Canberra. Viewed 4 April 2007,
<http://www.phiac.gov.au/statistics/phiacreports/index.htm>.
Productivity Commission 2005. Economic implications of an ageing Australia. Research
report. Canberra: Productivity Commission.
SCRCSSP (Steering Committee for the Review of Commonwealth/State Service Provision)
1999, Report on government services 1999. Canberra: AusInfo.
SCRCSSP (Steering Committee for the Review of Commonwealth/State Service Provision)
2003, Report on Government Services 2003. Canberra: Productivity Commission.
SCRGSP 2007, Report on government services 2007. Canberra: Productivity Commission.
Treasury (Department of Treasury) 2002. Intergenerational report 2002–03. 2002–03 Budget
paper No. 5. Canberra: Treasury.
Treasury 2004. Final Budget Outcome 2003–04. Canberra: Treasury.
Treasury 2007. Intergenerational report 2007. Canberra: Treasury.
UN (United Nations) 2002. International Standard Industrial Classification of All Economic
Activities (ISIC) Revision 3.1. New York: United Nations.
173
 
List of tables
Table 1:    Total health expenditure, current and constant prices, and annual  growth rates, 1995–96to
2005–06 .................................................................................................................................................8
Table 2:    Total health expenditure and GDP, current prices, and annual growth rates, 1995–96 to
2005–06 .................................................................................................................................................9
Table 3:    Total health expenditure and GDP, constant prices, and annual growth rates, 1995–96 to
2005–06 ...............................................................................................................................................10
Table 4:    Components of growth in the health expenditure to GDP ratio,  1995–96 to 2005–06,
per cent ...............................................................................................................................................11
Table 5:    Annual rates of health inflation, 1995–96 to 2005–06 (per cent)..................................................13
Table 6:    Average health expenditure per person, current and constant prices, and annual growth
rates, 1995–96 to 2005–06..................................................................................................................14
Table 7:    Total recurrent health expenditure, current prices, for each state and territory, all sources
of funds, 1996–97 to 2005–06 ($ million) ........................................................................................15
Table 8:    Total recurrent health expenditure, constant prices, for each state and territory, all
sources of funds, and per cent change, 1996–97 to 2005–06 ($ million).....................................15
Table 9:    Average recurrent health expenditure per person, current prices, for each state and
territory, all sources of funds, 1996–97 to 2005–06 ($)..................................................................16
Table 10:  Average recurrent health expenditure per person, constant prices, for each state and
territory, all sources of funds, 1996–97 to 2005–06 ($)..................................................................17
Table 11:  Annual growth in recurrent health expenditure per person, constant prices, all
sources of funding, by state and territory, 1996–97 to 2005–06 (per cent).................................18
Table 12:  Total health expenditure, current prices, by broad source of funds,  1995–96 to 2005–06
($ million) ...........................................................................................................................................21
Table 13:  Total health expenditure, current prices, by broad source of funds as a proportion of total
health expenditure, 1995–96 to 2005–06 (per cent) .......................................................................21
Table 14:  Total health expenditure, current prices, by broad source of funds as a  proportion of
GDP, 1995–96 to 2005–06 (per cent)................................................................................................22
Table 15:  Government funding of recurrent health expenditure, current prices, by area of
expenditure, and annual growth rates, 1995–96 to 2005–06........................................................25
Table 16:  Non-government funding of recurrent health expenditure, current prices, by area of
expenditure, and annual growth rates, 1995–96 to 2005–06........................................................26
Table 17:  Total funding of recurrent health expenditure, current prices, by area of expenditure,
and annual growth rates, 1995–96 to 2005–06...............................................................................27
Table 18:  Government funding of recurrent health expenditure, constant prices, by area of
expenditure, and annual growth rates, 1995–96 to 2005–06........................................................28
Table 19:  Non-government funding of recurrent health expenditure, constant prices, by area of
expenditure, and annual growth rates, 1995–96 to 2005–06........................................................29
Table 20:  Total funding of recurrent health expenditure, constant prices, by area of expenditure,
and annual growth rates, 1995–96 to 2005–06...............................................................................30
Table 21:  Total health expenditure, constant prices, and annual growth rates, by broad source of
funds, 1995–96 to 2005–06...............................................................................................................31
174
 
Table 22:  Funding of total health expenditure by Australian Government, current prices, by type
of expenditure, 1995–96 to 2005–06 ($ million) .............................................................................32
Table 23:  Department of Vetera ns’ Affairs health expenditure,  current prices, by area of
expenditure, 2005–06 ........................................................................................................................33
Table 24:  Non-government sector funding of total health expenditure, by source of funds, current
prices, 1995–96 to 2005–06................................................................................................................35
Table 25:  Non-government sector funding of total health expenditure, by source of funds, constant
prices, and annual growth rates, 1995–96 to 2005–06...................................................................36
Table 26:  Average out-of-pocket funding of recurrent health expenditure per person, constant
prices, and annual growth rates, by area of expenditure, 1995–96 to 2005–06.........................38
Table 27:  Expenditure on health goods and services funded through health insurance funds,
current prices, 2003–04 to 2005–06 ($ million)...............................................................................41
Table 28:  Health insurance funds reported expenses and revenues, current prices,  2003–04 to
2005–06 ($ million) ............................................................................................................................42
Table 29:  Expenditure on health goods and services and administration funded through  private
health insurance funds, constant prices, and annual growth rates, 1995–96 to 2005–06.........42
Table 30:  Average health expenditure funded by health insurance per person covered, constant
prices, by state and territory, 1996–97 to 2005–06 ($)...................................................................43
Table 31:  Fees charged, benefits paid and out-of-pocket expenditure, per person with private health
insurance hospital cover and/or ancillary cover, by age group and sex, current prices,
2005–06 ($)..........................................................................................................................................47
Table 32:  Expenditure by injury compensation insurers, constant prices, and annual growth rates,
1995–96 to 2005–06 ............................................................................................................................48
Table 33:  Recurrent expenditure by hospitals, constant prices, by broad type of hospital, and
annual growth rates, 1995–96 to 2005–06.......................................................................................52
Table 34:  Funding of hospitals, current prices, by broad source of funds, 1995–96 to 2005–06
(per cent).............................................................................................................................................54
Table 35:  Funding of public hospitals, current prices, by broad source of funds, 1995–96 to 2005–06.55
Table 36:  Government shares of recurrent expenditure on public hospitals, by level of government,
current prices, 1995–96 to 2005–06 (per cent) ................................................................................56
Table 37:  Recurrent funding of public hospitals, constant prices, by source of funds, and annual
growth rates, 1995–96 to 2005–06....................................................................................................57
Table 38:  Funding of public hospital services, Australia, current prices, by source of funds,
2003–04 to 2005–06 ............................................................................................................................59
Table 39:  Funding of public hospital services, states and territories, current prices, by source  of
funds, 2003–04 to 2005–06 ($ million).............................................................................................60
Table 40:  Funding of public hospital services, states and territories, current prices, by source  of
funds, 2003–04 to 2005–06 (per cent) ..............................................................................................61
Table 41:  Recurrent funding of medical services, constant prices, by source of funds, and annual
growth rates, 1995–96 to 2005–06....................................................................................................65
Table 42:  Shares of recurrent funding for medical services, current prices, and proportion of
medical services bulk-billed, 1995–96 to 2005–06 (per cent) .......................................................66
Table 43:  Recurrent expenditure on benefit-paid pharmaceuticals, constant prices, by source of
funds, and annual growth rates, 1995–96 to 2005–06...................................................................68
175
 
Table 44:  Recurrent expenditure of other medications, constant prices, by source of funds, and
annual growth rates, 1995–96 to 2005–06.......................................................................................69
Table 45:  Expenditure on pharmaceuticals for which a script is required, dispensed in the
community and by hospitals, current prices, 2005–06 ($ million)..............................................71
Table 46:  Pharmaceutical Benefits Scheme, Australian Government and patients’ payments,
2001–02 to 2005–06 ($ million) .........................................................................................................72
Table 47:  Recurrent funding for health research, constant prices, and annual growth rates, by
broad source of funds, 1995–96 to 2005–06....................................................................................74
Table 48:  Capital expenditure, constant prices, by source of funds,  1995–96 to 2005–06 ($ million) ...75
Table 49:  Capital consumption by governments, current and constant prices,  and annual growth
rates, 1999–00 to 2005–06..................................................................................................................76
Table 50:  Non-specific tax expenditure, current and constant prices,  and annual growth rates,
1995–96 to 2005–06 ............................................................................................................................77
Table 51:  Health expenditure as a proportion of GDP and per person, OECD countries,  1995
to 2005.................................................................................................................................................80
Table 52:  Government health expenditure as a proportion of total health expenditure and GDP,
OECD countries, 1995 to 2005 (per cent)........................................................................................82
Table 53:  Out-of-pocket health expenditure per person, and as shares of total health expenditure
and household final consumption expenditure, OECD countries, 1995 and 2005...................83
Table 54:  Components of growth in health expenditure, selected OECD countries, 1995 to 200 5,
(per cent).............................................................................................................................................84
Table 55:  Health expenditure comparison for selected Asia–Pacific countries, 2004 ...............................85
Table 56:  Total health expenditure, by financing agents, current prices, 2004–05 and 2005–06..............87
Table 57:  Total health expenditure, by mode of production, current prices, 2004–05 and 2005–06 .......88
Table 58:  Total health expenditure, by provider, current prices, 2004–05 and 2005–06...........................89
Table 59:  Classification of residential aged care expenditure by various Australian Government
agencies ..............................................................................................................................................91
Table 60:  Changes in aged care arrangements and policy since 1974 .........................................................92
Table 61:  RCS question set and weightings for residential aged care population June 2003...................93
Table 62:  RCS questions and funding subsidies for residential aged care population June 2003...........94
Table 63:  Residential aged care expenditure,  current and constant prices, 1999–00 to 2005–06 ............95
Table 64:  Health and welfare services expenditure to GDP ratio based on two classification
approaches, 2004–05 and 2005–06 (per cent).................................................................................96
Table 65:  Areas of health expenditure used in this report..........................................................................100
Table 66:  Area of health expenditure by type of deflator applied.............................................................107
Table 67:  Comparison of previously published estimates of total health  expenditure, current
prices, 1998–99 to 2004–05, with current estimates  ($ million) ................................................111
Table A1: Total health expenditure, current prices, by area of expenditure and source of funds,
2003–04 ($ million) ..........................................................................................................................116
Table A2: Total health expenditure, current prices, by area of expenditure and source of funds,
2004–05 ($ million) ..........................................................................................................................117
Table A3: Total health expenditure, current prices, by area of expenditure and source of funds,
2005–06 ($ million) ..........................................................................................................................118
176
 
Table A4: Total health expenditure, constant prices, by area of expenditure and source of funds,
2003–04 ($ million) ..........................................................................................................................119
Table A5: Total health expenditure, constant prices, by area of expenditure and source of funds,
2004–05 ($ million) ..........................................................................................................................120
Table A6: Total health expenditure, constant prices, by area of expenditure and source of funds,
2005–06 ($ million) ..........................................................................................................................121
Table A7: Annual growth in health expenditure, current prices, by area of expenditure, 1995–96
to 2005–06 (per cent) .......................................................................................................................122
Table A8: Annual growth in health expenditure, constant prices, by area of expenditure, 1995–96
to 2005–06 (per cent) .......................................................................................................................123
Table A9: Proportions of recurrent health expenditure, current prices, by area of expenditure,
1995–96 to 2005–06 (per cent) ........................................................................................................124
Table B1:  Total health expenditure, current prices, New South Wales, by area of expenditure and
source of funds, 2003–04 ($ million) .............................................................................................127
Table B2:  Total health expenditure, current prices, New South Wales, by area of expenditure and
source of funds, 2004–05 ($ million) .............................................................................................128
Table B3:  Total health expenditure, current prices, New South Wales, by area of expenditure and
source of funds, 2005–06 ($ million) .............................................................................................129
Table B4:  Total health expenditure, current prices, Victoria, by area of expenditure and source of
funds, 2003–04 ($ million) ..............................................................................................................130
Table B5:  Total health expenditure, current prices, Victoria, by area of expenditure and source of
funds, 2004–05 ($ million) ..............................................................................................................131
Table B6:  Total health expenditure, current prices, Victoria, by area of expenditure and source of
funds, 2005–06 ($ million) ..............................................................................................................132
Table B7:  Total health expenditure, current prices, Queensland, by area of expenditure and source
of funds, 2003–04 ($ million)..........................................................................................................133
Table B8:  Total health expenditure, current prices, Queensland, by area of expenditure and source
of funds, 2004–05 ($ million)..........................................................................................................134
Table B9:  Total health expenditure, current prices, Queensland, by area of expenditure and source
of funds, 2005–06 ($ million)..........................................................................................................135
Table B10: Total health expenditure, current prices, Western Australia, by area of expenditure and
source of funds, 2003–04 ($ million).............................................................................................136
Table B11: Total health expenditure, current prices, Western Australia, by area of expenditure and
source of funds, 2004–05 ($ million).............................................................................................137
Table B12: Total health expenditure, current prices, Western Australia, by area of expenditure and
source of funds, 2005–06 ($ million).............................................................................................138
Table B13: Total health expenditure, current prices, South Australia, by area of expenditure and
source of funds, 2003–04 ($ million).............................................................................................139
Table B14: Total health expenditure, current prices, South Australia, by area of expenditure and
source of funds, 2004–05 ($ million).............................................................................................140
Table B15: Total health expenditure, current prices, South Australia, by area of expenditure and
source of funds, 2005–06 ($ million).............................................................................................141
Table B16: Total health expenditure, current prices, Tasmania, by area of expenditure and source
of funds, 2003–04 ($ million) .........................................................................................................142
177
 
Table B17: Total health expenditure, current prices, Tasmania, by area of expenditure and source
of funds, 2004–05 ($ million).........................................................................................................143
Table B18: Total health expenditure, current prices, Tasmania, by area of expenditure and source
of funds, 2005–06 ($ million).........................................................................................................144
Table B19: Total health expenditure, current prices, Australian Capital Territory, by area of
expenditure and source of funds, 2003–04 ($ million) ..............................................................145
Table B20: Total health expenditure, current prices, Australian Capital Territory, by area of
expenditure and source of funds, 2004–05  ($ million).............................................................146
Table B21: Total health expenditure, current prices, Australian Capital Territory, by area of
expenditure and source of funds, 2005–06  ($ million).............................................................147
Table B22: Total health expenditure, current prices, Northern Territory, by area of expenditure
and source of funds, 2002–03 ($ million) ....................................................................................148
Table B23: Total health expenditure, current prices, Northern Territory, by area of expenditure
and source of funds, 2003–04 ($ million) ....................................................................................149
Table B24: Total health expenditure, current prices, Northern Territory, by area of expenditure
and source of funds, 2004–05 ($ million) ....................................................................................150
Table B25: Total health expenditure, current prices, Northern Territory, by area of expenditure
and source of funds, 2005–06 ($ million) ....................................................................................151
Table C1:   Hospital expenditure, current prices, by area of expenditure,  2004–05 ($ million).............154
Table C2:   Health expenditure, current prices, by area of expenditure and source of funds,
2004–05  ($ million) ........................................................................................................................155
Table D1:  Total health price index and industry-wide indexes.................................................................159
Table D2:  Growth rates for the total health price index and industry-wide indexes, 1995–96 to
2005–06 (per cent)...........................................................................................................................160
Table G1:  Australian mean resident  population, 1995–96 to 2005–06......................................................163
Table G2:  Mean resident population, by state and territory, 1996–97 to 2005–06 (‘000) ........................164
Table G3:  Annual population growth, by state and territory, 1996–97 to 2005–06 (per cent) ...............164
178
 
List of figures
Figure 1:   The structure of the Australian health care system and its flow of funds ..................................4
Figure 2:  Total health expenditure and GDP, constant prices, 1995–96 to 2005–06.................................10
Figure 3:  Annual growth of health expenditure and GDP, constant prices, 1995–96 to 2005–06 ..........12
Figure 4:  Average recurrent health expenditure per person, current prices, for each state and
territory, 2005–06 ($).........................................................................................................................16
Figure 5:  Total health expenditure, current prices, by source of funds as a proportion of total
health expenditure, 1995–96 to 2005–06 (per cent).......................................................................22
Figure 6:  Recurrent health expenditure, by area of expenditure and source of funds, current prices,
2005–06...............................................................................................................................................24
Figure 7:  Individuals’ funding of recurrent health expenditure, by area of expenditure, current
prices, 2005–06 ..................................................................................................................................37
Figure 8:  Funding of recurrent health expenditure through private health insurance funds,  by
area of expenditure, current prices, 2005–06.................................................................................39
Figure 9:   Funding of recurrent health expenditure through private health insurance, constant
prices, 1995–96 to 2005–06...............................................................................................................44
Figure 10:  Hospital benefits paid and out-of-pocket expenditure, per person with private health
insurance hospital cover, by age group, current prices, 2005–06..............................................45
Figure 11:  Ancillary benefits paid and out-of-pocket expenditure, per person with private health
insurance ancillary cover, by age group, current prices, 2005–06.............................................45
Figure 12:  Recurrent expenditure on health goods and services, current prices, by broad  area of
expenditure, 2005–06.......................................................................................................................50
Figure 13:  Funding of public hospitals, constant prices, by broad source of funds,  1995–96 to
2005–06..............................................................................................................................................58
Figure 14:  Funding of private hospitals, current prices, by broad source of funds, 2005–06 ..................62
Figure 15:  Recurrent expenditure on medical services, current prices, by source of funds,  2005–06....64
Figure 16:  Recurrent expenditure on benefit-paid pharmaceuticals, current prices, 2005–06.................67
Figure 17:  All other medications expenditure, by category, current prices, 2005–06 ...............................70
Figure 18:  Capital expenditure, constant prices, by broad source of funds, 1995–96 to 2005–06............75
Figure 19:  Health expenditure as a proportion of GDP, selected OECD countries, 1995 to 2005 ...........81
179
 
List of boxes
Box 1: Defining health expenditure and health funding .................................................................................1
Box 2: Constant price and current price expenditures.....................................................................................2
Box 3: Public hospital and public hospital services expenditure..................................................................51
Box 4: Australian Government and state and territory governments’ health funding agreement
periods.......................................................................................................................................................53
Box 5: Periods equating to OECD year 2005....................................................................................................79
180