Seismic funding shift needed
In the March edition of The Specialist we have an article from our health policy analyst Lyndon Keene about what this year’s budget might bring for health. It is based on a detailed analysis of figures and funding levels. As promised we have republished the article here in full, to include those details.
Seismic funding shift needed
Against a backdrop of a worldwide health pandemic, long delays for treatment, overwhelmed mental health services, staffing shortages, burnout, and dilapidated hospital buildings, how will this year’s health Budget shape up?
On the face of it, the Government’s Budget Policy Statement, released in December, looks encouraging. With a $6 billion Budget operating allowance for 2022/23 (the amount of new operational spending available government-wide) – this is the largest spend since the Global Financial Crisis of 2008. Covid-19 spending aside, Vote Health could see at least a third of this figure.
Unfortunately, this potential $2 billion increase to Vote Health is not as rosy as it may seem at first blush. Much, if not all of the additional funding could be swallowed up by the costs of inflation, demographic changes, DHB deficits and Budget pre-commitments.
The Covid-19 pandemic has helped draw attention to the lack of investment in health, but, as the Health and Disability System Review found, the system was struggling to cope well before Covid-19 arrived in New Zealand.
Even the Health Minister Andrew Little has conceded this failure, saying, “It did not help that funding for our public health system failed to keep up with population growth for many years, that much-needed investment in new facilities and modern IT systems was simply not made, and that pay for nurses went backwards in real terms.”
Among 15 comparable countries, New Zealand ranked second-to-bottom in 2019, both on per capita spending and total spending per GDP. New Zealand would have needed to add $4.5 billion to match the median country spend per GPD of Norway. It would be higher still this year. This is the scale of funding needed to address entrenched staff shortages and unmet health need. New Zealand’s low funding levels have contributed to relatively low rates of surgeries, poor access to new medicines and poorer cancer survival rates when matched against other countries. Funding of DHBs continues to be well short of what is needed to run a properly functioning health service.
An ASMS analysis has also found that to be on a par with Australia, New Zealand needs approximately 1,500 hospital specialists (private and public), 1,600 GPs and 12,000 nurses. This recently led ASMS to call for the declaration of a health workforce emergency, which attracted the support of other health unions and the Medical Association.
Despite this, the potential remains to put financial substance into the Government’s ‘Build Back Better’ slogan for health services over the coming years. But to do so would require the Government to continue with annual budget operating allowances to at least the levels announced for this year’s Budget. Currently, the Finance Minister Grant Robertson is saying this year’s allowance is a ‘one-off’. But in New Zealand, with its low government debt and low government spending per GDP among OECD countries, the size of budget allowances has more to do with politics than affordability.
What is clear then, is that each year’s health Budget will be shaped by the health politics at play.
With Health NZ looming, much is expected from the restructured system, the managers, and those working at the front line of health care provision. But as the Health and Disability System Review put it: “No system can operate effectively without adequate funding.”
The Government’s aspiration of everyone being able to have timely access to effective health care according to their need is not radical, but it will take a seismic shift in funding to get anywhere close to that. This requires relinquishing old ways of thinking where health services are viewed as costs that need to be controlled. Rather, we need to take a broader social and economic perspective which recognises the overwhelming evidence that spending in health is an investment resulting in substantial social and economic gains. Whether or not the new system meets this funding challenge is about to be tested.
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|Table 1: Health Vote 2022/23 – Additional estimated costs over last year’s budget|
|Cost and wage pressures, assuming 3.1% CPI on operational spending and Treasury’s forecast 4.5% cost-of-living increase on wages overall.||$816m[i]|
|Demographic changes (including the ageing effect)||$390m[ii]|
|Additional funding to ensure that HNZ and the MHA do not return to deficits in 22/23 and following years||$700m[iii]|
|TOTAL OPERATIONAL FUNDING REQUIRED TO MAINTAIN STATUS QUO||$1,906m|
|Unknown additional costs include:|
|Funding for recently announced new initiatives and ongoing initiatives from last year’s budget, including additional funding for reforms||$200m[iv]|
|Pay equity settlements, including those for nurses and midwives and administrative and clerical workers, and allied health workers.||?|
|Implementing nurses’ safe staffing programme||?|
|Any other new initiatives to yet to be announced||?|
|Any increased funding needed for the reforms over and above what is currently budgeted||?|
[i] Cost and wage pressures.
Last year’s total Vote Health budget included $20,264m operational funding, excluding Covid-related funding. Health Workforce Advisory Board has estimated the total wage bill for the sector was approx. 66%; 34% is for other costs. A 4.5% wage increase would be approx. $602m. Cost increases, based on Treasury’s CPI forecast of 3.1% for 2022/23 would be $214m. (State Sector wages usually lag behind the rest, but these estimates take into account the nurses’ pay settlement from September 2021, which is reported to cost DHBs alone $400m, and the fact that at least 130,000 health service workers are non-state sector, many of whom are government-funded. These estimated do not take into account any lifting of the state sector pay freeze for those earning $100,000+ and restrictions for those earning $60,000+, with the cost of living rising by 5.9% to December 2021 and a forecast 3.1% for the coming financial year.)
[ii] Population growth and ageing.
Estimate from Ministry of Health figures on demographic cost adjustments, including ageing, suggest a 1.96% increase is needed for non-departmental funding.
[iii] DHB deficit cover.
This is a conservative estimate. Deficits totalled $711 million in 2020/21. Early indications from individual DHBs suggest they could be higher in 2021/22. Some of the deficit is due to DHBs complying with the Holidays Act provisions. This estimate assumes any offsetting savings from scrapping DHBs will be relatively marginal.
[iv] Multi-year initiatives.
This includes multi-year initiatives from Vote Health 2021/22 ($63m). A further announced $544 operational funding “over a number of years” for new ICU and inpatient beds ($136m per year, assuming a budget over four years). This doesn’t include $65 million announced for a new six-bed ICU facility at Waitakere Hospital and a new 30-bed ward as it’s unclear how much of that is operational funding.