The 2016 NSW Intergenerational Report (IGR) projected health expenses to be the largest driver of long-run expense growth for NSW. It projected health expenses to grow from 28 per cent of total expenses by 2056 to 36 per cent - at a long-term annual growth rate of 6.0 per cent - in the absence of policy intervention.

This reflects the pressures of an ageing population, and non-demographic factors such as advancements in health technology and expectations for more and improved health services over the next 40 years.

Health is a key component of individual and social wellbeing and enabler of economic growth. Healthier people are more likely to live longer, productively participate in the economy, and actively contribute to the community. While Australians enjoy a high life expectancy, we are faced with the challenge of a rising burden of chronic disease. 

Chronic diseases can become more serious over time and increase a person’s demand for health services later in life. Reorienting the health system to effectively and efficiently target prevention and early intervention can improve health outcomes, alleviate the fiscal impact of population ageing and lift economic participation and productivity.

NSW Treasury publishes long-run health expense projections every five years, with the next projections to be published with the 2021 IGR. Projections are calculated using NSW Treasury’s Long-Term Fiscal Pressures Model (LTFPM), based on anticipated growth in service delivery cost and demand volumes. This paper reviews the approach to health expense projections in the LTFPM and proposes a refinement to better reflect recent trends in the proportion of years spent in good and poor health as people age. 

The proposed methodology and projections contained in this paper are preliminary and will be finalised in the 2021 IGR to be released in early 2021.