2.4 Discuss health expenditure and its impact on current and future populations

1. Health expenditure

1.1 What is health expenditure?

Health expenditure is the money spent on health goods and services across both the public and private sectors. It includes spending on care provided in hospitals, in the community, and through national funding arrangements that reduce the cost of care for individuals.

Health expenditure commonly includes:

• Hospitals and hospital services, such as emergency care, surgery, inpatient care and outpatient clinics
• Primary healthcare, such as GP consultations, community health services and preventive checks
• Specialist and diagnostic services, including pathology and imaging
• Medicines, including those subsidised through national schemes
• Public health and prevention, including immunisation, screening, health promotion and risk reduction campaigns
• Health workforce and system administration, including staffing, training, regulation and governance
• Capital and infrastructure, such as hospital buildings, equipment and digital health systems

It also includes major Commonwealth-funded programs that shape access and outcomes for groups with higher needs, such as the NDIS and My Aged Care.

1.2 Why does health expenditure matter?

Australia spends heavily on health. In 2022–23, total health expenditure was about $252.5 billion, or around 9.9% of GDP. This high level of spending supports strong national outcomes, including a life expectancy of about 83 years.

Health expenditure matters because it affects:

• the availability of services
• the quality of care
• the affordability of treatment
• the fairness of access between population groups
• the long-term sustainability of the health system

Australia spends a large amount on health, and this contributes to strong overall outcomes. However, the effect of health expenditure depends not just on how much is spent, but on where it is spent and who benefits from it.

A key issue is that most health expenditure goes to the treatment and management of illness that already exists, while a much smaller share goes to prevention and early intervention. This affects future disease burden, future demand for services, and the fairness of health outcomes.

Example: If large amounts of expenditure are used for repeated hospital admissions caused by poorly controlled type 2 diabetes, there is less capacity to invest in earlier support such as dietetic care, culturally safe primary care and regular screening that may reduce those admissions over time.

2. Healthcare versus prevention

2.1 Why treatment receives most spending

A major issue in health expenditure is the balance between healthcare and prevention. Healthcare refers to diagnosing, treating and managing illness and injury. Prevention refers to reducing risk and stopping illness or injury before it develops or worsens.

Australia’s health system has traditionally spent far more on healthcare than on prevention. This is understandable because people who are already sick need care immediately. Hospitals, medicines, diagnostic testing and chronic disease management are all expensive, but they are essential and cannot simply be delayed.

This treatment focus has clear strengths. It:

• improves survival
• supports management of chronic disease
• provides care for urgent and complex conditions
• protects many people from very high health costs through public funding

However, it also means much of the system is focused on downstream spending, where money is spent after illness has already developed and complications have become more serious.

Example: A person who receives regular GP care and subsidised medication for high blood pressure may avoid a stroke. A person who misses this care may later require emergency treatment, intensive care, surgery and rehabilitation after a stroke. The second pathway is far more expensive and has greater long-term impacts on independence and quality of life.

2.2 Why prevention receives less spending

Preventive health receives a very small share of total health expenditure. According to AIHW, Preventive health interventions account for around 2.9% in 2023–24 of Australia’s total health expenditure, which is lower than the average reported for many comparable OECD countries. This has been estimated at roughly $5.4 billion per year, or about $201 per person per person.

Prevention is often underfunded because its benefits usually take years to appear and can be difficult to attribute to one specific program.

Governments also face strong pressure to fund immediate and visible needs such as:

• emergency department demand
• elective surgery waiting lists
• staffing shortages
• rising hospital costs

In addition, not all health conditions are preventable. This means prevention can reduce pressure on the system, but it can never replace treatment completely.

Despite this, prevention is highly important because more than one-third of Australia’s total disease burden is linked to preventable risk factors such as smoking, physical inactivity, poor diet and harmful alcohol use. Preventive expenditure targets these risks through immunisation, screening programs, and public health campaigns such as Quit, SunSmart and road safety initiatives.

Example: Long-term investment in anti-smoking strategies has helped reduce smoking rates and has contributed to lower rates of lung cancer and cardiovascular disease. This shows that prevention can reduce future disease burden, even if the effect is gradual.

2.3 Why the balance matters

A stronger prevention focus can produce major long-term benefits. It can:

• reduce avoidable chronic disease
• improve early detection
• lower the severity of illness
• reduce preventable hospital admissions
• ease pressure on hospitals and the health workforce

However, there are also limits. Prevention does not remove the need to treat people who are already unwell. In the short term, prevention can even increase costs because governments still need to fund treatment while also expanding preventive programs.

This means the issue is not whether health expenditure should support healthcare or prevention, but how the system can achieve a better balance between them. Too much focus on treatment increases future pressure. Too little treatment would disadvantage people with immediate health needs. The National Preventive Health Strategy 2021–2030 reflects this shift by setting a target to increase prevention expenditure to 5% of total health spending by 2030.

Prevention can also extend life, which is a positive outcome, but this does not always remove future expenditure. In some cases, it increases the years people live with managed chronic disease, which can shift costs towards long-term care rather than eliminate them altogether.

Example: A school-based physical activity and nutrition program may not reduce hospital admissions next month, but if it reduces adolescent obesity and improves lifelong activity patterns, it can lower future rates of diabetes and heart disease.

3. Sustainability, access and equity

3.1 Sustainability

Sustainability refers to whether health expenditure can be maintained over time without reducing service quality, creating unreasonable costs for individuals, or placing excessive pressure on government budgets.

Several factors place pressure on sustainability:

• Population ageing increases demand for healthcare. Older people are more likely to live with multiple chronic conditions, use more medicines, require more regular care, and need aged care support.
• Chronic disease creates ongoing costs. Conditions such as cardiovascular disease, diabetes, cancer and respiratory disease often require long-term management, regular monitoring and continuing access to medicines and services.
• New technologies and treatments can improve outcomes, but they are often expensive. This creates pressure to decide which treatments provide sufficient value for the cost.

A sustainable health system must therefore do more than simply spend more money. It must spend in ways that improve health outcomes while limiting avoidable future demand.

3.2 Access

Access refers to whether people can obtain appropriate care when they need it.

Australia’s health system aims to provide broad access, but barriers still exist. These include:

• cost, such as gap fees and out-of-pocket expenses
• location, particularly in rural and remote areas
• workforce shortages, where services are funded but not easily available
• limited service coverage, especially in areas such as dental care and some allied health services

Access is important because delayed care often leads to worse health outcomes and higher treatment costs later. A person who cannot afford or reach early care may eventually require more complex and expensive hospital treatment.

Example: A person living in a remote area may be covered by Medicare but still face long travel distances to see a specialist. This can delay diagnosis and treatment until the condition becomes more serious.

3.3 Equity

Equity refers to fairness in health expenditure, service access and health outcomes. It recognises that equal spending does not always produce fair results, because different groups experience different levels of need and different barriers to care.

Equity-focused expenditure directs resources towards people and groups who face greater disadvantage or higher health risk.

Groups that commonly experience inequities include:

• Aboriginal and Torres Strait Islander peoples
• people in rural and remote areas
• people in low socioeconomic communities
• people with disability
• some culturally and linguistically diverse communities

This means health expenditure should not only fund services broadly. It should also target areas of greater need through subsidies, culturally safe care, workforce incentives, community-based services and integrated support.

3.4 How sustainability, access and equity interact

These three ideas are closely connected.

• Poor access can lead to delayed care
• Delayed care can worsen health outcomes and reduce equity
• Worse health outcomes increase future costs and weaken sustainability

This means effective health expenditure must do more than keep services running in the present. It must also reduce barriers, improve fairness and prevent unnecessary future pressure on the system.

4. Medicare, private health insurance and related Commonwealth-funded programs

4.1 Medicare

Medicare is the foundation of Australia’s universal health system. It helps ensure that people can access healthcare according to need, rather than only according to their ability to pay.

Medicare supports the system by funding or subsidising:

• GP and specialist services through the Medicare Benefits Schedule (MBS)
• public hospital treatment for public patients
• many diagnostic services
• affordable medicines through the Pharmaceutical Benefits Scheme (PBS)

Under Medicare, the government sets a schedule fee for many medical services. If a doctor charges more than this amount, the patient pays the difference as an out-of-pocket cost or gap. If a doctor bulk bills, they accept the Medicare benefit as full payment, so the patient pays nothing for that service.

Medicare improves access and financial protection. It helps many people seek care earlier and reduces the risk that illness will become worse because treatment is unaffordable.

However, Medicare does not remove all costs. Gap fees, limited coverage in some service areas, and reduced bulk billing in some places can still create barriers.

Example: A person with asthma may have GP visits subsidised through Medicare and medicines subsidised through the PBS. This lowers out-of-pocket costs, supports treatment adherence and reduces avoidable emergency presentations.

4.2 Private health insurance

Private health insurance is the voluntary part of Australia’s mixed public-private system. It can include:

• hospital cover, for treatment as a private patient
• extras cover, for services such as dental, physiotherapy and optical care

Private health insurance can increase choice and provide faster access for some elective procedures. It can also reduce some pressure on the public system by funding treatment in private hospitals.

People may choose private health insurance for:

• shorter waiting times for some procedures
• choice of doctor
• choice of hospital
• access to extras such as dental, physiotherapy and optical services
• greater privacy and comfort during hospital stays

Private health insurance is also shaped by government policy. The government encourages people to take out cover through the Private Health Insurance Rebate, the Medicare Levy Surcharge for higher-income earners without appropriate hospital cover, and Lifetime Health Cover loading, which increases premiums for people who join later in life. These policies are designed to increase private participation and reduce pressure on the public system.

However, it also raises issues of fairness. People with higher incomes are more likely to have private health insurance, and this can create a two-speed system where some people access care more quickly than others.

Example: Two people need a non-urgent hip replacement. A person with private health insurance may be able to have surgery sooner in a private hospital. A public patient may wait longer, but they do not pay direct hospital costs.

4.3 Related Commonwealth-funded programs

The syllabus also refers to related Commonwealth-funded programs, including the NDIS and My Aged Care.

Both programs are important because they improve quality of life, reduce unmet need and support groups who may otherwise face major barriers. At the same time, both also increase long-term expenditure pressures, particularly as demand grows.

5. Impact on current and future populations

5.1 Impact on current populations

Health expenditure affects current populations by shaping the availability, quality and affordability of care.

For the current population, health expenditure has many positive impacts. It:

• funds hospitals, medicines and health workers
• supports earlier diagnosis and treatment
• reduces many out-of-pocket costs
• contributes to strong national health outcomes
• improves survival and quality of life for many conditions

However, the impact is not the same for everyone. High national spending does not automatically produce fair outcomes. Some groups still face poorer access, longer delays, greater costs or less culturally safe care.

This means the current impact of health expenditure is mixed. It clearly supports better health overall, but it does not remove all inequities.

Example: A person with heart disease who can afford regular GP reviews and PBS-subsidised medicines is more likely to maintain stable health and avoid hospital admission. Another person with limited access to bulk billing may delay follow-up and experience preventable deterioration that leads to emergency admission.

5.2 Impact on future populations

Health expenditure also shapes the experience of future populations.

If expenditure is directed towards strong prevention, effective primary care, workforce development and efficient long-term planning, future populations are more likely to experience:

• lower preventable disease burden
• better early intervention
• less pressure on hospitals
• fairer access to services
• a more sustainable health system

If expenditure remains heavily focused on treating preventable illness after it has already become severe, future populations are likely to face:

• higher costs
• greater fiscal pressure on governments
• more demand from ageing and chronic disease
• workforce strain
• longer waiting times and access pressures

This means current spending decisions affect not only people using the system now, but also the quality and sustainability of care available in the future.

5.3 Overall

Health expenditure has a significant impact on both current and future populations because it influences what care is available, who can access it, how fairly services are distributed, and whether the system can keep meeting demand over time.

• healthcare is essential because people need treatment now
• prevention is essential because it reduces future disease burden
• access and equity must be improved so expenditure benefits all groups more fairly
• sustainability matters because rising costs cannot simply continue without reform

Overall, health expenditure improves the health of Australians, but its full impact depends on how effectively Australia balances treatment with prevention, manages rising demand, and directs funding towards fair and sustainable outcomes.