Healthcare projections in Treasury s Long-term Fiscal Model

Transcription

1 Healthcare projections in Treasury s Long-term Fiscal Model An actuarial perspective Aaron Park and Marcella Lau March 2017

2 Overview How do you project healthcare costs? Part 1 The Treasury model Part 2 Exploring an alternative approach The context... Side 2 of 20

3 Healthcare takes up a chunk of the economy From a 2015 OECD report: Includes public and private spending NZ overall expenditure is at 9.5% Source: Health at a Glance 2015: OECD Indicators, OECD Publishing, Paris. DOI: Side 3 of 20

4 The role of the Treasury Required by law to produce, every four years, a Statement on the Crown s Long-Term Fiscal Position Highlight challenges that will face future governments Provide public with evidence based insights Includes 40-year projections on the fiscal position based on the LTFM Side 4 of 20

5 Treasury projection of government spending Only some of these classes show proportional increases Finance costs due to funding deficits Healthcare goes from 6.2% in 2015 to 9.7% by 2060 Methodology differences: ground up approach vs. constrained historical Demographic base is preferable, where applicable Source: Based on figures published by the New Zealand Treasury at Side 5 of 20

6 Underlying healthcare drivers Future demographic structure Historical costs Increasing demand Rising service prices Side 6 of 20

7 Healthcare in the 2016 LTFM Forecast expenditure level (year 2020) 5 year transition towards stable % of GDP Bottom up approach from 2025 Modelling Demographic factors, Non-demographic factors, Π, l = (1 + )(1 + Π )(1 + l ) 1 Side 7 of 20

8 Healthcare in the 2016 LTFM Forecast expenditure level (year 2020) 5 year transition towards stable % of GDP Bottom up approach from 2025 Modelling Demographic factors, Non-demographic factors, Π, l = (1 + )(1 + Π )(1 + l ) 1 Side 8 of 20

9 Non-demographic factors CPI growth (Π) 2% pa x Elasticity of healthcare service costs ( ) Labour productivity index (l) x Elasticity of healthcare labour costs ( ) 1.5% pa* = (1 + )(1 + Π )(1 + l ) 1 *transitions into Side 9 of 20

10 Healthcare in the 2016 LTFM Forecast expenditure level (year 2020) 5 year transition towards stable % of GDP Bottom up approach from 2025 Modelling Demographic factors, Non-demographic factors, Π, l = (1 + )(1 + Π )(1 + l ) 1 Side 10 of 20

11 Population factors Group health expenditure % x Group population growth Allocation by class Female Male Under 15 6% 7% 15 to 24 5% 4% 25 to 44 12% 7% 45 to 64 11% 11% 65 to 84 15% 14% Over 84 7% 3% 55% 45% Sourced from Stats NZ Healthy ageing retardant factor Improvements in life expectancy 75% weighting Side 11 of 20 = 1 + h h h h h h + h h

12 Demographic Analysis Multi-State Markov Model Health μ σ Sickness δ δ Death ( ) = ( ) Side 12 of 20 = + 1

13 Disability Services Transition Rates from Non-Disabled to Disabled Also + 5% of births $2,500 Males Cost of Disability p.a. Females $2,000 $1,500 $1,000 $500 Costs outside of age range plotted are higher $ Side 13 of 20

14 Mental Health & Addiction Services $25,000 $20,000 Male Cost of MHAS p.a. Female Transition Rate From Non-MHAS to MHAS Client Male Female $15,000 $10,000 $5,000 $- Side 14 of 20

15 Cost of Birth, Living and End of Life = x Cost ($000) of Males Modelled using Last 8 Years 400, , , , , , ,000 50,000 Modelled Actual 0 700,000 Cost ($000) of Females Modelled using Last 11 Years 600, , , , , ,000 0 Modelled Actual Side 15 of 20

16 Comparison with the LTFM Core Health Expenditure 11.3% of GDP 10.2% 9.7% Demographic: 0.8% 1.1% p.a. (w/o H.A.) Non-demographic: 4.6% p.a Treasury w/o Healthy Ageing Treasury Modelled w/o Healthy Ageing Modelled Side 16 of 20

17 Cost ($b) Cost ($b) Cost by Component 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% No Healthy Ageing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Health Cost Breakdown Birth and Living Mental Health & Addiction Disability Support Services End of Life Birth and Living Mental Health & Addiction Disability Support Services End of Life w/o Healthy Ageing Side 17 of 20

18 Cost by Age 2060 Males Treasury Model Model w/o H.A y.o. 4% 5% 4% y.o. 16% 20% 18% 65+ y.o. 24% 23% 24% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Male Total Cost Split 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Female Total Cost Split 2060 Females Treasury Model Model w/o H.A y.o. 4% 5% 4% y.o. 18% 20% 18% 65+ y.o. 34% 27% 31% Side 18 of 20

19 Summary Built upon 2004 Treasury paper model: Multi-state Markov model Incorporated mental health & addiction Included cost of birth Altered definition of end of life Comparison with Treasury 2016 LTFM Cost Healthy ageing Age breakdown Side 19 of 20

20 Further Investigations Monte Carlo simulation By beginning age and health status: Lifetime health costs Life-long constant real premiums Use to model effect of government policies Valuation approach Intergenerational fairness e.g. public insurance Investment approach Fiscal effectiveness e.g. reduction of addiction Side 20 of 20