Is the Health Sector Underfunded?

The Ministry of Health funding blunders have once again shone a spotlight on health sector funding. Labour is now claiming that National has underfunded the sector by $2.3b. The size of that number is very debatable, and has been made to look as scary as possible, but Labour seems to have a good case for their claim of underfunding. Regardless of the quibbling over health funding, the real issue is that none of the establishment parties are dealing with the long-term issues faced by the health sector.

Funding Claims

Labour commissioned Infometrics to have a look at health funding compared with the pressures from inflation and population changes. That study found that health was underfunded by $2.3b – but note that total is over the 8 years that the National Government has been in power. The actual annual funding gap is closer to $218m, or $497m if you don’t count the recent claim over equal pay for care and support workers. So a funding gap exists, but Labour is guilty of National’s disease of adding up funding over many years to make a number seem bigger than it really is.

On the other hand, Labour could argue the numbers Infometrics used were conservative. There is an argument that the inflation rate for the health sector is higher than the rest of the economy. In other words, the health sector needs more money each year just to keep doing what it always does. That is why government health spending has grown from 3c in every dollar we earn in 1950 to 6c now, and is expected to hit 10c by 2060.

National to their credit have been trying to improve the efficiency of the health sector. There is evidence that the health sector can be more efficient and productive by improving their processes, but this takes time to do. However, given the cuts that are taking place in some services it seems that these efficiency savings aren’t enough to cope with the funding gap.

No one is dealing with the long-term issues

So National is trying to keep a lid on spending, while Labour screams for funding increases. Neither party is dealing with the issue that if we want to keep our public health system we have to start doing healthcare differently.

In its current form the health sector is unsustainable. Even if we keep throwing money at the sector they won’t have the staff to meet demand. While The Opportunities Party’s (TOP) Health policy hasn’t been released yet, there are three long-term issues it will cover off that establishment parties are ignoring. Some DHBs are trying to do these things already, but they could do with government support:

1. Invest more in prevention to stop people getting ill. We can’t keep putting the ambulance at the bottom of the cliff, we have to put a fence at the top. A dollar invested in prevention and primary health care has four times the return on investment than a dollar spent on hospital treatment.

2. We have to face up to the fact that demand for treatment outstrips what the health system can deliver. There are a number of ways we can deal with this, but in some cases we know the system treats people more than they would choose if fully informed. We have to inform people of the downsides of treatment, and give them more freedom to make their own choices. We also need to fund alternatives, like quality care to give people a real choice. Studies have shown that when this is done well, many people choose not to receive treatment.

3. The health system has to keep getting more efficient. Some of the changes needed may be difficult. Healthcare is getting more specialised so that will mean that if people want the best quality care they will have to go to larger hospitals in the big cities.

These are large challenges, but if we start acting now we can make our health system sustainable before the problems of increased demand, the ageing population, and chronic diseases (like diabetes) really hit.




Showing 14 reactions

  • David Robinson
    commented 2017-07-07 20:08:08 +1200
    David Roberts, I agree. Dental care should be funded under a health system.
  • David Roberts
    commented 2017-07-07 17:30:09 +1200
    People want funded dental care, want to win votes give them affordable dental!!
  • Barbara Simsch
    commented 2017-06-29 20:36:19 +1200
    Responding to John Petrie’s comment : How come that health insurances in Germany, which are either public and compulsory or private spend a huge amount on prevention? To loose money? There is a multitude of programmes and offers free of charge for everyone: courses for a healthy life style, methods to reduce stress, drug education, respite holidays just to name a few.

    This is a statement on their web-site “Krankenkassen Deutschland”, which represents all health insurers:

    Für die Krankenkassen macht das auch wirtschaftlich Sinn: Wenn sie ihre Versicherten heute von einem gesunden Lebensstil überzeugen, bleiben ihnen morgen die Kosten für teure Behandlungen erspart. Schon deshalb bietet heute fast jede Kasse Gesundheitsprogramme an: vom Nordic-Walking über Herz-Kreislauf-Training bis zum Aqua-Jogging.

    Translation: It also makes economic sense for health insurances : When they convince their clients of today to lead a healthy life, it will save them the costs of expensive treatments tomorrow. And that is why almost every insurer offers health programmes, ranging from Nordic-Walking, cardiovascular-training to Aqua-Jogging.

    Here you can find several pages about prevention:
  • Kevin FitzGerald
    commented 2017-06-26 08:58:48 +1200
    Like Mr Petrie I agree that the patient and professionals have become secondary to endless accounting as opposed to provision of service. But would it not be easier to simply revert to one centralised Health Provider. We are a very small country so why fragment services? And why a card as opposed to a health ministry that provides for all. Private health providers simply drain the system of talent and cherry pick their services. There are some things that a welfare state does superbly well. The colossal damage done in 1984 needs to be reversed.
  • John Petrie
    commented 2017-06-24 10:14:46 +1200
    I am a specialist physician in a provincial DHB.
    Your first objective is based on a discredited but persistently repeated premise that funding " prevention " from the health budget will result in cost savings. I am disappointed that TOP is parroting this populist meme; with the important exception of childhood vaccinations there is an absence of evidence that increased spending on prevention is anything other than a political platform and a marketing strategy for vested interest. A useful discussion in the context of American politics can be found here:
    n engl j med 358;7 february 14, 2008
    The barriers to efficiency (and hence to providing better health for the same money) include the fragmentation and multiplicity of DHBs and the devolution of spending decisions to middle-management whose duty is to their line supervisors. Provision of health services to patients by front line staff is secondary to the pursuit of budget adherence, which is the prime talent of the ever expanding bureaucracy.
    So be innovative, and invert the pyramid of accountability! Your exciting concepts of taxation of wealth and distribution of a universal basic income will be perfectly complemented by a universal health insurance scheme allowing people who become patients to take their health Credit Card to the primary, secondary and tertiary providers of their choice, truly a user-pays principle.
  • Frank Darby
    commented 2017-06-23 23:46:47 +1200
    You say not a word about caregiver welfare or morale. Nor does anyone else. It is as if the worker is taken for granted and is just expected to perform. (This was especially so under a previous administration.) If the current level of service is to be maintained, caregivers need to be treated as vulnerable people, just as everyone is vulnerable, and note made of the high demands on them. To do otherwise may lead to a worsening of staff numbers as health care becomes more and more difficult to work in, and the overall level of competence declines as more and more staff wear or burn out. In other words, an ethical approach to health staffing needs to be maintained. More funds will fix this issue only in part. The other move must be to balance patient safety and caregiver morale. High morale benefits patient safety, but high levels of outcomes DO NOT lead to high morale.
  • David Robinson
    commented 2017-06-23 23:24:10 +1200
    Gareth, I’d like to see monopoly power used in reverse to get the biggest benefits for the public.
    To me:
    1) There should only be a single government client representing the public. We don’t need to own the hospitals, what we need for kiwi inc is to be the monopoly health service requester.
    2) When someone needs treatment, the providers have to bid for the service. There would be real time market pricing which would drive huge efficiencies and the ability to treat more people for the same budget.
    3) If someone wants to see a particular medical specialist then that person could chose to pay the increment over the lowest bid.
    4) In the case there is a monopoly service provider for a specialty in a NZ location, it wouldn’t stop NZ inc sending a patient to another city or overseas for the same treatment if it was at a lower cost (inc transport & accommodation etc).
    5) There would need to be some tough & clear rules around duty of care and who is liable when a medical treatment goes wrong. As long as the rules are clear the providers can assess the risk, and where necessary insure for the cost risk.
  • Alistair Newbould
    commented 2017-06-23 22:01:18 +1200
    Steve Hudson, well said. Let’s see what the policy says because the one liner you quote will hopefully be better explained
  • Norman Hagemann
    commented 2017-06-23 17:59:22 +1200
    I would love to see a policy that requires all sitting members of parliament and their families forego private health care and be required to use the public health system for all their medical requirements. I think this would quickly adjust the priorities of the national budget.
  • Rosser Thornley
    commented 2017-06-23 09:29:32 +1200
    First, may I say how wonderful it is to join the “blog world” – thanks to TOP for introducing this opportunity to reflect on the policies being promoted by you to foster freedom of culture, equality under the law and fraternity in the economic life. I would encourage members to participate in this way

    It is no coincidence that Infometrics has determined a funding gap of 218m per annum in the publicly funded health sector. This matches the cost of healthcare provided to overseas visitors not currently being recovered (1.5% of Vote Health). Parliament has chosen not to address this waste which is only going to grow as overseas visitor numbers increase

    However, there is now the possibility that fresh tourism and finance ministers will collaborate with Ministry of Health (MOH) to recover these funds. The most elegant process would be capturing travel insurance details at the border and matching these with MOH data on health treatment received. Providers could then invoice patients confident that all costs have been identified and able to be recovered.

    Bingo! – the 218m funding gap resolved. Happy providers would once again sing the praises of the unjustly maligned MOH (see my other reflection on this topic below). And, best of all, no consulting fee for this advice. Just a double-headed chocolate-coated icecream thanks C/o Raglan beach
  • Kevin FitzGerald
    commented 2017-06-23 07:53:10 +1200
    Uh-oh (if that is how it is spelled). TOP really has not realised, by the sound of the above, how poorly our health system is performing. Having worked in a very stressed organisation which was constantly being restructured I recognise the same symptoms in the health sector. The system has become the patient. Whilst many professionals do their utmost in trying circumstances to deliver an excellent service their efforts are cancelled out by the system itself. That a charity hospital exists in Christchurch is a national shame. That people remain in pain for years when an operation could alleviate the pain is also a national shame. There is a whole culture shift needed here not just some economic tweaks. And it will cost and taxes would have to rise significantly. Health care is a government responsibility just as much as justice, welfare or housing. The private sector can’t sort this for us.
  • Steven Hudson
    commented 2017-06-22 21:31:08 +1200
    I’m a general surgeon in a rural center in NZ. Our hospital serves 45 000.

    “If people want the best quality care they will have to go to larger hospitals in big cities”.
    So what do you think happens now? Very large complex surgeries are already sent out of town, quite appropriately. Do you want to send hernia repairs to Auckland? How is paying for flights and accommodation for people to have routine surgery in large centers efficient? Or are they supposed to fund it themselves? If you take elective services away from rural surgeons, then they can’t stay in rural centers as they will de-skill. So then you have no surgeons in rural centers. That means no acute services and unnecessary patient deaths.

    Efficiency means doing more with the same or less money and we are already stretched to the point of burnout.

    As for people choosing not to have treatment, this implies that I currently don’t consent my patients appropriately for surgery. I convince patients to have surgery they don’t need? It’s insulting.

    I’ve been really impressed with TOP policy until I saw this piece of writing which I think is a poorly thought out piece of nonsense written by someone with no understanding of issues at the coalface.
  • Oliver Krollmann
    followed this page 2017-06-22 18:38:53 +1200
  • Rosser Thornley
    commented 2017-06-22 11:08:18 +1200
    In regard to the performance review of the Ministry of Health (MOH), it would be useful for State Services Commission (SSC) to report on the impact of changes made by the government to the structure of pubic health governance following the passing of the 2011 Health and Disabilty Ammendment Act. This established 3 new Boards reporting directly to the minister, effectively knee-capping the MOH in carrying out its role. This led to the Director General returning home to the UK and has been a continuing headache for MOH senior management since. (As an aside, Dame Paula Rebstock sat on one of these Boards – Health Benefits Limited – it seems a conflict of interest for her to now be writing the SSC report). The SSC report needs to examine the effectiveness of those Boards and the extent to which the ability of the MOH to perform its role was compromised by them