CTU Media Release

22 May 2011

Health Budget on track for a $150m shortfall

A pre-Budget analysis of government health expenditure released today by the New Zealand Council of Trade Unions estimates that if the current funding track for Vote Health is continued this year, there will be a $150 million shortfall that must be met by cuts in services, increased user charges or efficiency or productivity increases.

The Budget track for Health has been that it receives $420 million in new money each year says Bill Rosenberg, CTU Economist.

Bill Rosenberg said “the government has already announced approximately $23 million of those cuts and increased user charges, including the rise from $3 to $5 in prescription charges. We estimate that to avoid cuts in services or increased user charges, the Health Vote would need to increase by at least $570 million just to keep pace with population growth, ageing, increases in costs, and the spending announcements made by the government to date.”

“We estimate that $506 million would be needed without the new spending announcements, including $411 million for District Health Boards (DHBs). DHBs usually receive $350 million of the increase. If that happens again, they will have a $61 million shortfall.”

“Given that there has been a shortfall of over $220 million over the last two years, significant productivity improvements will be increasingly hard to find,” says Bill Rosenberg. “That suggests we will see more deterioration in services or increased user charges.”

“The CTU and its affiliated health sector unions have made this estimate so that we and the public can judge whether the Health vote announced in the Budget on 24 May provides for improved health services, or is really a cut in those services, or a standstill,” said Rosenberg.

In the last two years, the CTU carried out a similar analysis prior to Budgets. “Our estimate of the increase needed simply to keep up with costs and population increase was within 1 percent of that provided by the Ministry of Health in 2010 and 2 percent in 2011. Last year we estimated that $564 million was required, compared with the Ministry’s estimate of $576 million. In addition we allowed for new treatments and an increase in productivity, both which the Ministry did not allow for. Our estimates therefore tend if anything to underestimate the needs of Vote Health.”

ENDS

Notes to Editors

A brief Q&A follows and a working paper and spreadsheet providing details of the analysis is attached and will be available on the CTU web site

http://union.org.nz/sites/union.org.nz/files/Funding-for-Health-System-2012.pdf

http://union.org.nz/sites/union.org.nz/files/Health-vote-2012-pre-Budget.xlsx

Health Budget on track for a $150m shortfall: Q & A

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

In the 2011 Health vote, $13,499 million was allocated for operational expenses, plus $454 million for capital expenditure, a total of $13,953 million. Operational expenses will need to rise by 3.7 percent or $506 million (from $13,499 million to $14,005 million) to maintain the current levels of services. It would need a further $64 million to cover the new Health spending so far announced by the government without cuts elsewhere, bringing the total to $570 million.

Estimating capital needs is more difficult as the drivers for it are less direct. Capital goods prices are rising only slowly so cost pressures alone would require the $454 million capital funded in the 2011 Budget to rise to $458 million. With that, the total Health vote would rise from $13,953 million in 2011/12 to $14,464 million in 2012/13 without any new Health spending.

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

The biggest portion of the Health vote is to fund District Health Boards (DHBs). In the 2011 Budget, $10,497 million went to DHBs and $2,768 million to fund other health programmes such as provision of clinical training, infection control and immunisation programmes, public health and other national health services. It is estimated that DHB funding will need to rise by 3.9 percent, or $411 million, and funding for the other health programmes by 3.2 percent, or $88 million, to maintain service levels.

· What about administration costs and any other spending?

The operation of the Ministry of Health, and “other” expenses such as New Zealand’s membership of the World Health Organisation and legal expenses require an estimated further $7 million, taking them to $240 million.

· What were the NZCTU’s estimates based on?

The estimates are based on a population increase, including an allowance for the ageing population, of 1.56 percent, wage and salary increases (based on most recent settlements) of 3 percent for senior medical staff and between 0.5 percent and 1.85 percent for other staff, and other cost increases at the forecast level of inflation of 2.0 percent. The working paper shows how the estimates would change with a variation in any of these values.

· Has allowance been made for productivity improvements?

If we use the assumed productivity increase in Treasury’s long-term projections of 0.3 percent, it saves $42 million. However productivity is notoriously difficult to measure in the health sector. There is evidence of increasing productivity but we also need to be careful to distinguish real productivity and efficiency gains from the spin often put on cuts in services.

The CTU health sector unions have made substantial commitments to improving services in the health sector. They are involved in a number of projects under the auspices of the Health Sector Relationship Agreement (between unions, DHBs and government) which tap into the expertise and experience of the unions’ health care members in order to improve the delivery and quality of health care. Their expectation is that productivity will improve, although its results may often be measured in better patient health outcomes rather than immediate cost savings. However better patient health outcomes do result in future cost savings by reducing demand which is in fact the only way to keep costs down in the long run.

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

We have taken account of savings for which there is publicly available information. There have been announcements of savings in previous financial years that do not affect the calculation of the increased expenditure needed this year, and we have incorporated savings from the restructuring of several health agencies, amounting to $5 million. There are projections of an additional $60 million savings for the current financial year but we have not incorporated those because we consider that is optimistic given that projects to make those savings are still in development and are likely to have significant costs in the first year even if they get underway on schedule.

ends

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