Estimating the future health and aged care expenditure in Australia with changes in morbidity

We estimate the pure effect of ageing on total health and aged care expenditure in Australia in the next 20 years.

We use a simple demographic projection model for the number of people in older age groups along with a needs based estimate of changes in the public and private cost of care per person in each group adjusted for expected changes in morbidity.

A pure ageing model of expenditure growth predicts an increase in health expenditure per elderly person from $7439 in 2015 to $9594 in 2035 and an increase in total expenditure from $166 billion to $320 billion (an average annual growth of 3.33%). If people live longer without additional morbidity, then total health expenditure only grows at an average annual rate of 0.48%. If only some of those additional years are in good health, then the average year on year growth is 1.87%.

Ageing will have a direct effect on the growth of health spending but is likely to be dwarfed by other demand and supply factors. A focus on greater efficiency in health production and finance is likely to be more effective in delivering high quality care than trying to restrain the demand for health and aged care among the elderly.