Peter Martin

“Hospital is not a bad place to die,” Karen Hitchcock quotes a general hospital physician as saying. “People aren’t really preoccupied by their environment when they’re dying.” Hitchcock makes a compelling case for spending more money rather than less at the end of life and for embracing the kind of intervention the Intergenerational Report seems to be saying we can’t afford. In anecdote after anecdote she argues that we spend too little time with the aged and dying and put too little effort into ensuring that they can keep living. She says the alternative view, that old people should be left to die quietly at home, is often driven by concerns that are “primarily fiscal.”

The good news is the fiscal concerns are misplaced.

Treasurer Joe Hockey put them most starkly shortly after taking office when he said that if nothing changed, Australia would “run out of money” to pay for its health, welfare and education systems.

The fine print of the Intergenerational Report shows no such thing. Sure, it shows that by 2055 the proportion of gross domestic product devoted to Australian government spending on health will have climbed from 4.2 per cent to 5.7 per cent. But it also shows that the size of the pie – GDP itself – will have more than tripled. That’s a real (inflation-adjusted) measure. By 2055 Australians will be able to buy twice as much again as they can now. To be sure, the extra buying power will be divided among more people (just as the extra health spending will be divided among more people), but after adjusting for population, GDP per person will be 80 per cent bigger than it is now. That’s right. We will find it far, far easier to boost the slice of the pie going to health than we would today. Not only will we not run out of money to spend what’s projected, we are also likely to spend more than is projected – because we will want to.

Health is what economists call a “superior good.” As incomes climb, we want more of it, not only in absolute terms but also as a proportion of our higher incomes. Most goods aren’t superior goods. Cars and holidays are usually “normal goods.” As our incomes climb, we spend more on them, but not more as a proportion of our higher incomes. A small number of goods are “inferior”: powdered milk is one. As our incomes rise, we not only spend less on them as a proportion of our higher incomes but also less in absolute terms – in the case of powdered milk, next to nothing.

We will pay for the extra health spending we will want by paying more tax, as we’ve been doing for decades as our incomes have grown. At the start of the 1970s we paid the Commonwealth only 17.8 per cent of GDP in tax. We now pay 22 per cent. I am betting we will pay at least 26 per cent by 2055, but the Intergenerational Report assumes only 23.9 per cent, apparently in the belief that we won’t be keener and keener to spend on health as our incomes climb further. The ANU election surveys show that as recently as the late 1990s voters were more concerned about tax (23 per cent) than they were about health (10 per cent). By 2001 the two were on level pegging at 16 per cent, and by 2013 concerns about tax (11 per cent) were dwarfed by concerns about health (19 per cent). The richer we become, the more we want to be well looked after, and the more tax we are prepared to pay to ensure it, regardless of what’s assumed in the report.

It’s entirely sensible behaviour. Extra spending on health is helping buy big increases in life spans and, just as importantly, big increases in healthy life spans.

Australian Institute of Health and Welfare data shows that back in 1998 a woman who had turned sixty-five could expect sixteen more years. Now it’s nineteen. A man who had reached sixty-five could expect twenty more years. Now it’s twenty-two. For both genders, all but a few months of those extra years are free of disability. Our longer life spans are mainly pushing out the uncomfortable and expensive final years, rather than extending them.

And in any event, it isn’t ageing that’s driving health spending. The Intergenerational Report says only 20 per cent of the projected increase in health spending will be driven by changing demographics. The other 80 per cent will be driven by higher incomes, higher wages and better and more expensive technologies – the kind of things that usually drive health spending.

Hitchcock quotes a NSW finding that hospital costs associated with the last year of life fall rather than climb with age. The older people get, the healthier they have to have been and the more years of life they have left. The government actuary finds that an Australian who has reached 100 can expect another 2.5 years of life, an Australian who has reached 105 can expect another 2 years, and an Australian who has reached 109 can expect an extra 1.7 years. The attitude that Hitchcock finds among hospital staff and among some of her aged patients themselves that older Australians aren’t worth treating owes little to evidence.

The financial problem scarcely exists. There will be something of a labour problem as the ratio of Australians of traditional working age to those of non-working age shrinks. But it’s pretty easily solved by extending working lives (as is already happening) and by accepting more workers from overseas. Many of Hitchcock’s colleagues in the general wards would be from overseas. (I’ll leave to one side for the moment the ethics of importing doctors from places such as India, where the needs are greater.)

The ANU surveys suggest the public backs Hitchcock. People want better medical care and are prepared to pay for it. The government doesn’t, really. It’s prepared to build a fund to bankroll medical research, but when it comes to hospital staff on the ground it has offered the states a ludicrous funding deal based on the consumer price index rather than wages or medical costs.

But governments can change. We are heading towards a future in which one third of the electorate will be aged sixty-five or older. Freed from the traditional political loyalties of earlier generations, the new generation of seniors is likely to swing their votes behind whichever side of politics offers them the best deal. Unless I am very wrong, part of that deal will be medical care, care that enables them to hang on to “dear life.”


Peter Martin is the Age’s economics editor. A former ABC economics correspondent and Commonwealth Treasury official, he has been writing about economics since 1985.


This correspondence discusses Quarterly Essay 57, Dear Life. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 58, Blood Year.


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