Budget Resources

Melanie Conn

Federal health spending (over $110 billion next year) pays for services relevant to the entire Australian community. The Australian, state and territory governments share responsibility for Australia’s health system. For example, the Australian Government is responsible for Medicare, the Pharmaceutical Benefits Schedule (PBS) and supporting primary health care services, while the states manage public hospitals (with financial assistance from the Australian Government) and deliver many community-based and preventive services. This article explores federal health expenditure over time, anticipated hospital funding and selected significant budget measures relating to medicines, mental health and the $1.2 billion ‘Strengthening Medicare’ package.

Hospitals and Medicare are driving growth in expenditure

The 2024­–­25 Budget projects health spending of $112.7 billion in 2024­–25, increasing to $122.8 billion in 2027­–28 (Budget strategy and outlook: budget paper no. 1: 2024–25, p. 206). As COVID-19 related measures have fallen away – the Australian Government spent an estimated $35.1 billion on the health response – projected spending has largely reverted to trend (Figure 1).

Figure 1        Health function expenditure, 2013­–14 to 2027–28

Source: Parliamentary Budget Office (PBO), Historical fiscal data, 2024–25 Budget update, (Canberra: PBO, 2024), table 7.

Budget paper no. 1 highlights spending on hospitals and Medicare among the fastest-growing major payments over the medium term (p. 91). Public hospital funding has grown as a share of health expenditure from 22% in 2013–14 to 27% in 2024–25 (Figure 1) and is set to grow by nearly 21% over the forward estimates period (further discussion below) (Figure 2). Medicare expenditure is projected to grow around 17% due to continued growth in demand for services, mostly driven by population growth (p. 206). Expenditure on the PBS is projected to remain stable, reflecting existing price control policies and that the projections do not include new listings. Other areas of expenditure remain relatively steady, with the decline in spending on health services reflecting the end of certain measures for preventive health and chronic disease (Budget paper no. 1, p. 208).

Figure 2        Major health expenditure sub-functions, 2024­–25 to 2027–28

Source: Australian Government, Budget Strategy and Outlook: Budget Paper no. 1: 2024–25, 210–211.

Hospital funding estimates do not include additional funding offered to states

The National Health Reform Agreement sets the parameters for the Australian Government’s contribution to public hospital services. The current Agreement expires on 30 June 2025.

The projections over the forward estimate years (Figure 2) are based on the current National Health Reform Agreement, and do not reflect the Australian Government’s commitment, announced in December 2023, to increase its share of funding to 45% by 2035. A mid-term review of the current agreement recommended the Australian Government increase its contribution (approximately 40% nationally in 2022–23) to 45% over the course of the next agreement (pp. 88–89). In December 2023, the Minister for Health and Aged Care, Mark Butler, stated this would provide an additional $13.2 billion in the 5 years to 2030. Subsequent reporting suggests there has been a revised Australian Government offer to increase spending by 13.5% in 2026. Budget paper no. 1 explains the Contingency Reserve includes a provision to reflect outcomes of the December 2023 National Cabinet meeting, as the funding remains subject to negotiations (pp. 225–226). Governments are working to agree a new hospital funding agreement by the end of June 2024.

The increase in Australian Government funding for hospitals should help state governments with issues such as ramping, elective surgery waitlists, and workforce shortages. Hospitalisation is an expensive form of care and governments will need to continue to drive efficiency in service provision and invest in primary and preventive care that help avoid hospitalisation where possible.

$1.2 billion to help secure the next hospital funding agreement

The Budget provides some further detail on the $1.2 billion ‘Strengthening Medicare’ package of measures announced by National Cabinet in December 2023.

Most funding ($882.2 million over the forward estimates) will support earlier discharge from hospital for older Australians (Budget measures: budget paper no. 2: 2024–25, p. 126; unless specified otherwise, all page number references below refer to this budget paper). Public health systems have had significant issues with hospital patients staying longer than medically necessary because they did not have a suitable next place to go. In 2021–22, 10.7 per 1,000 patient days were used by patients waiting for residential aged care, up from 9.2 days the year before (Table 14A.28). The Australian Medical Association estimated that patients in hospital waiting for residential aged care services cost the health system between $316.7 million and $847.6 million in 2020–21 alone (p. 4).

In addition to extending and expanding Australian Government transition and palliative care programs (over $270 million), the package provides $610.4 million over 4 years for states and territories to invest in ways to address long stay older patient challenges (p. 126). While this funding is substantial, the lack of a suitable workforce may constrain effectiveness.

The package also provides an additional $227.0 million over 3 years for Medicare Urgent Care Clinics (p. 128). This will fund 29 additional clinics (bringing the total to 87) as well as additional support (as yet unspecified) to regional and rural clinics. Doctors’ groups expressed disappointment, arguing funding would be better invested in general practice, and called for an evaluation. It appears jurisdictions are being consulted on locations for new clinics, and specific sites are being announced progressively, for example Armadale (WA), Bridgewater (Tasmania) and Ryde (NSW).

The third element of the package is $90 million over 3 years from 2023–24 (p. 111) to fund implementation of the health-related recommendations of the Independent review of Australia’s regulatory settings relating to overseas health practitioners (the Kruk Review). Commissioned by National Cabinet in September 2022, the review found an urgent need to reform current regulatory arrangements to make it simpler, faster, fairer and less costly for overseas health practitioners to come to Australia. A Health Workforce Taskforce in the Department of Health and Aged Care will oversee implementation of recommendations. States and territories are responsible for the legislative framework for health practitioner regulation.

This package of measures, together with the commitment to expand its share of funding, will underpin the Australian Government’s position in negotiating with state and territory governments over future hospital funding arrangements.

Cost of living relief for medicines, but the end of the $1 discount

The ‘Securing cheaper medicines’ measure (p. 124) provides $484.4 million over 6 years from 2023–24 to freeze annual indexation of co-payments for PBS-subsidised medicines. The general co-payment will remain at $31.60 until 1 January 2026, while the co-payment for concession card holders will remain at $7.70 until 1 January 2030. This builds on the 2022–23 budget measure that reduced the general co-payment from $42.50 to $30 from 1 January 2023. Cost of living pressures have reduced access to medicines, with the proportion of people who delayed or did not get prescription medicine due to cost rising from 5.6% in 2021–22 to 7.6% in 2022–23, with higher levels among seniors and those living in areas of socio-economic disadvantage.

However, the Budget also flags the demise of the optional $1 discount, introduced by the Abbott Government. Since 1 January 2016, pharmacists have been able to choose to discount the patient co-payment by up to $1. This amount will now be reduced each year until it reaches zero. This represents a win for the Pharmacy Guild in the soon to be finalised 8th Community Pharmacy Agreement negotiations. The Guild has argued it undermines universality and creates inequities (p. 3), while Chemist Warehouse, a major user of the discount, criticised the phase-out as a ‘backward and anti-competitive step’.

The government will need to amend the National Health Act 1953 to implement these measures.

Can new mental health services fill gaps?

The ‘Mental health’ measure funds the government’s response to the 2022 evaluation of the Better Access initiative, providing $888.1 million over 8 years and $139.8 million per year ongoing (p. 116) (some government briefing materials refer to $361 million, which appears to be the funding over the forward estimates). Better Access provides a limited annual number of Medicare-subsidised mental health services. The evaluation found the initiative delivers positive outcomes but has accessibility issues (pp. 14–15). The Government states the budget measure aims to fill gaps in Australia’s mental health service provision that have put pressure on existing services.

In its 2020 Mental health inquiry report, the Productivity Commission suggested that up to 1 million people with mental illness were receiving no clinical care (p. 29). The Commission identified key gaps in low intensity services and services for the ‘missing middle’ who have symptoms too complex to be treated through current Medicare-rebated GP and psychologist services but not reaching the threshold for state or territory funded specialised mental health services (pp. 29-30).

The centrepiece of the budget measure is funding to establish a new, free of charge, early intervention digital mental health service ($588.5 million over 8 years with $113.4 million per year ongoing, p. 116. It appears this includes $163.9 million over the forward estimates). According to the government:

Approximately 150,000 Australians will use the service each year … Providing free services to people at the earliest point of intervention, will make it less likely that their problem will go untreated and worsen into something more serious. It will also relieve pressure off the Better Access program to be all things to all people, and support psychologists to work to their full scope of practice and spend more time treating people with moderate and high needs. (p. 16)

The government states (p. 20) the service is based on the UK model of talking therapies, which in 2022­–23 reported a recovery rate of 49.9% among those finishing treatment.

There is also additional funding for Primary Health Networks to commission mental health services that provide wraparound care for people with severe and/or complex needs ($71.7 million), new funding for child and youth mental health services ($29.7 million) and funding to build the clinical capability of Head to Health Services ($29.9 million, p. 116). A network of 61 centres, to be renamed as Medicare Mental Health Centres, is to be opened by mid-2026 (p. 20).

Together, these initiatives represent an expanded effort by the Australian Government to build system capacity and a stepped care model. This aligns with reform directions recommended by the Productivity Commission, which called for a comprehensive community support system providing the right services for people at the right time (pp. 3, 6). The extent to which the new measures will contribute to building a person-centred, flexible and integrated mental health system remains to be seen. Implementation challenges will include adequacy of resourcing to meet demand, workforce availability and integration with existing services, particularly at the state and territory level.

Stakeholders have broadly welcomed the new investments, for example Beyond Blue called the early intervention service ‘a significant step towards vital structural reform’. However, Mental Health Australia argued the level of funding falls short of need and the Royal Australian and New Zealand College of Psychiatrists was disappointed by the lack of any substantial commitment to grow the mental health workforce. The National Mental Health and Suicide Prevention Agreement and related bilateral schedules, which are set to expire on 30 June 2026, provide a broad framework for collaboration with states and territories, but concerted effort on design and implementation will be required.

The future of the National Mental Health Commission remains uncertain following the independent investigation and functional and efficiency review conducted last year. Minister Butler previously indicated that the government was considering resetting and strengthening the commission’s role. The Budget announces that the commission’s functions and funding will transfer to the Department of Health and Aged Care while the government considers longer-term arrangements (p. 120).

Some reform areas remain pending

The Public Health Association of Australia criticised the lack of certainty on resourcing and timeline for implementation of the Australian Centre for Disease Control (CDC). The 2023–24 Budget provided 2-year funding to progress its establishment and an interim Australian CDC is currently operating within the Department of Health and Aged Care.

New preventive health measures ($514.8 million over 4 years, p. 121) largely reflected extensions of a range of existing activities rather than any major new initiatives, drawing some stakeholder criticism.

In his Budget in reply speech, Opposition leader Peter Dutton criticised the Budget’s lack of focus on a looming shortage of general practitioners and announced a $400 million plan to incentivise more junior doctors to pursue a career as a general practitioner.

Beyond the Kruk Review implementation noted above, there was limited new funding for health workforce initiatives, with some funding to support First Nations doctors and a commitment to extend existing single employer model trials until 31 December 2028 (p. 111). Reviews of health workforce distribution levers and barriers to health professionals working to their full scope of practice are currently underway and will likely shape workforce measures in future budget updates.

 

All online articles accessed May 2024

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