Understanding the different approaches to reporting Australian health expenditure

This paper provides a comparison of the ABS' national accounts and estimates published by the Australian Institute of Health and Welfare (AIHW) in Health expenditure Australia (HEA), and discusses the two frameworks used to compile those estimates. The purpose of this paper is to highlight the different nature and purpose of the respective estimates, and explain key conceptual differences between the two measures. The comparison shows how adjustments based on scope and conceptual differences can be made to national accounts estimates to improve their comparability with AIHW estimates. The paper also highlights the distinction between government transfers, where certain transfers need to be 'netted out' of the full economy, and final consumption expenditure. This distinction provides a key difference between HEA and national account estimates. The remainder of the paper explains the differences between the HEA and national accounts, including scope and statistical concepts derived from the use of different frameworks.

he Australian System of National Accounts (ASNA) and HEA both measure government and private expenditure in the health care industry, but each dataset is designed to be used for different purposes. Both datasets are compiled from a variety of data sources using separate frameworks.

The national accounts uses the supply-use framework to compile estimates of health expenditure, consistent with the System of National Accounts (SNA) adopted by the United Nations Statistical Commission (UNSC). It uses this economy-wide framework to balance detailed information on the supply of goods and services with the use of those products throughout the economy. This framework ensures the numerical consistency of data drawn from different sources, detects weaknesses in the quality of data drawn from those sources, and reconciles differences with input data. Data sources and methods are discussed in more detail in Australian System of National Accounts: Concepts, Sources and Methods (see Chapter 9 to 11).

HEA works within the general framework of the System of Health Accounts (SHA 2011) to produce internationally comparable estimates of health expenditure. The SHA is is the result of a collaborative effort between the Organisation for Economic Co-operation and Development (OECD), World Health Organisation (WHO) and the European Commission. This system is the international standard for measuring health expenditure, providing an accounting framework to detail monetary flows around the core classifications of health care functions, provision and financing. It constitutes a common framework for enhancing the comparability of monetary data over time and across countries, with links to non-monetary indicators.

Data used to compile the national accounts and HEA ultimately come from the same source. However, different treatments are applied in order to achieve their respective purposes. HEA estimates government and non-government expenditure on health, and the types of health goods and services purchased, while the national accounts focuses on the production of health care goods and services. The largest difference between estimates of the two datasets is the conceptual treatment of final consumption expenditure (a national accounting concept) versus total health expenditure. Adjustments are also made to the following components in the national accounts:

• the Pharmaceutical Benefits Scheme (PBS);
• health-related government transfers to households;
• residential age care; and
• consumption of fixed capital.

Together, these SNA-based adjustments form the bulk of differences between the two datasets, in addition to minor adjustments related to timing and editing processes. These adjustments serve the purpose of applying a consistent treatment through the full range of accounts in the SNA framework. National accounts estimates yield similar results to HEA data once national accounting adjustments have been applied to the same source data.

The first step in this comparison is to examine government activity in the health care industry, and the different data sources used to estimate government expenditure in both datasets. Health is one of the largest components of government expenditure. The national accounts compiles government final consumption expenditure (GFCE) from Government Finance Statistics, Australia (GFS) (cat. no. 5512.0), and AIHW reports total health expenditure financed by government and other sources in HEA. GFCE represents current expenditure incurred by general government units on goods and services provided to the community, such as health and education. National accounts estimates for government spending correspond broadly to HEA estimates for health expenditure financed by government.

HEA estimates are compiled from data provided directly by government departments and agencies across all jurisdictions. The GFS are based on information provided in, or underlying, the published accounting statements and reports of governments and their authorities. The GFS system covers all government activities, including the operations of government-controlled corporations and authorities. Distinctions are made between final consumption expenditure and government transfers to households and other sectors, and between the operations of market-oriented units controlled by governments and all other government units.

In order to compare like-for-like, adjustments are applied to the GFS dataset used in the national accounts. Figure 1 compares HEA estimates with adjusted GFS estimates for government health expenditure. The national accounts estimates represent health-related expenses incurred by the general government sector. The HEA estimates represent total recurrent expenditure by all levels of government on health, with government expenditure being the largest component of total health expenditure. The estimates in Figure 1 include national accounting adjustments, which are explained with greater detail in the Australian System of National Accounts: Concepts, Sources and Methods, 2015 (cat. no. 5216.0).

Government spending in both datasets has increased at the same rate, growing by an average of 6 per cent per year between 2006-07 and 2015-16. Differences between the two datasets remain relatively stable over time, ranging from $7 billion (11.8%) in 2006-07 to $12 billion (10.7%) in 2015-16.

The next step is to examine non-government spending in the health care industry. The national accounts compiles household final consumption expenditure (HFCE), and HEA reports expenditure financed by individuals, private health insurance funds and injury compensation insurers. National accounts estimates for household spending are broadly equivalent to health expenditure financed by non-government entities in HEA estimates. Households are also consuming health goods and services that have been financed and provided by other sectors of the economy. An example would be the National Disability Insurance Scheme (NDIS) providers (in the not-for-profit sector) delivering services to households based on funding from the government sector.

Figure 2 compares HEA estimates with national accounts estimates for non-government health expenditure. The HEA estimates represent total recurrent expenditure by non-government sources on health. The national accounts estimates represent health-related expenses incurred by the household sector and businesses. Expenditure on health insurance and injury compensation are reflected elsewhere in the national accounts (see next section). They include adjustments based on SNA accounting standards. Private spending in both datasets has been trending upwards over time. National accounts estimates have grown by an average of 5 per cent per year between 2006-07 and 2015-16, and HEA estimates at a marginally higher rate of 6 per cent per year.

A key reason for the difference between the two datasets is the distinction between final consumption expenditure and total spending on health. The national accounts distinguishes between government transfers and the eventual government final consumption expenditure in the GFS system, with the primary focus, for national account purposes, being on final expenditure. A government transfer is a transaction in which a government unit provides a good, service, or asset to other sectors of the economy without receiving anything in return. The HEA estimate is based on financial flows that include all transfers of funds between levels of government (and the private sector), accounting for the flow of funds through the Australian health care system.
However, for national accounting purposes, certain funding flows need to be ‘netted out’ to avoid double counting in the full economy. This is illustrated by the distinction between total spending on health and final consumption expenditure, which is crucial for national accounting purposes. In 2015-16, for example, total health related government expenditure from GFS was $129 billion, including $30 billion of transfers to/between governments and $95 billion of government final consumption. The national accounts only record final consumption expenditure, and this may be misinterpreted as 'missing' or not recording the $30 billion of transfers.

National accounting emphasis on final consumption expenditure, excluding health related government transfers, is a key difference between HEA and GFS estimates which feed into national accounts estimates for health. Differences are also attributable to final consumption expenditure being reflected in industries other than health care (particularly Manufacturing, Pharmaceutical retailing and Insurance). Minor differences are attributable to report timing and methodologies supporting the different purposes of the respective collections.

The ABS and AIHW both produce health expenditure statistics, which are used for different analytical purposes and differing perspectives by applying different approaches. The primary purpose of the HEA, as prepared by AIHW, is to measure total health expenditure in a comprehensive and consistent way. The ABS provides information for economic analysis, based upon a national accounting economy-wide framework. This paper has explained the differences and similarities between the statistical frameworks used by both agencies, and demonstrates how the different conceptual treatments account for differences between the national and health accounts. The two measures provide a broadly consistent narrative of health expenditure in Australia, and a coherent set of health care statistics for use in policy making.

By Ross Alexander (Research Hub), Pippa Kuhnel (AIHW), Kien Nguyen (AIHW) and David Skutenko (Research Hub)

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