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Ageing - will the real culprit please stand up?

By Pamela Kinnear - posted Saturday, 15 June 2002

The Intergenerational Report released in the 2002-2003 Federal Budget is another sleight of hand. It claims to be about ageing. It is about the blow out in health costs. A closer look reveals however, it identifies only a blow out in pharmaceutical costs.

Moreover, the Intergenerational Report itself reiterates the views that moderate and respected commentators have been arguing for a long time – ageing contributes in only a small way to rising health costs.

According to the Intergenerational Report spending on aged care is likely to rise, but compared to the rise in general health costs, aged care will be a pretty modest burden. Moreover, the real drivers of health costs are things like ‘the growing cost of new health care technology, increasing use of services and strong consumer demand and expectations’. And one main component of future health expenditure – pharmaceuticals – outflanks all the rest, projected to increase five-fold between now and 2042.


Is the report inferring that the Pharmaceutical Benefits Scheme will blow out because of ageing? That more older people will mean more expensive medicines? If so, it produces no evidence. Neither does any other literature. Despite this, possible reasons – although much debated – include;

  • the distorting influence of a small number of new and very expensive drugs,
  • aggressive marketing of drug companies and the problem of ‘leakage’ (that is, when drugs achieve a higher usage level than was initially anticipated by the PBS).

But the main reasons vying for pole position do not include population ageing.

Indeed, it seems safe to conclude that if it wasn’t for the blow out in pharmaceuticals subsidies (because of reasons unrelated to ageing), the future would not look nearly so miserable. Population ageing has been ‘framed’ and its contribution to future health costs wildly exaggerated in popular and political rhetoric.

To the extent that ageing will pose fiscal difficulties in the future, according to the IGR, it will be because we cannot expect extra revenue to meet extra costs. Most of our revenue is raised through income tax and income tax revenue declines with age. (Maybe this is softening us up for a rise in the GST?).

On this basis, the Treasurer suggests that we have a simple and stark choice: we can cut funding now or we can raise taxes to pay for it. A truly forward-thinking view of the future, however, would not be so limited.


The report attempts, and fails, to project important trends into the future. Trend lines for factors such as the ‘unemployment rate’, ‘average hours worked’, ‘labour productivity growth’ all fluctuate according to actual variation until about 2006, but then the projection turns into a single, straight line. But we know that variations in these trends could have a profound impact on future revenue, and all are highly amenable to policy resolution. In fact, there are many alternatives to simply cutting funds or raising taxes.

The first task is to change our thinking and our questions. We need to start thinking of health expenditure as an investment not a cost. Rather than asking ‘how will we cope with the demographic timebomb’, we need to ask ‘what can we do to minimise the costs of medicines and health costs in the future without reducing population health’?

We can increase the emphasis on public health and health promotion. It is true that older people have a range of health problems requiring medication. But the vast majority of these conditions are lifestyle-related. The Australian Institute of Health and Welfare estimates that 80 per cent of health related conditions in old age are preventable or postponable if corrected in time. If dietary changes and an increase in physical exercise can replace the need for expensive medications and at the same time extend productive and non-dependent life, this seems a highly efficient strategy with returns far exceeding outlay.

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About the Author

Dr Pamela Kinnear is a Research Fellow at the Australia Institute. A sociologist by training, Dr Kinnear conducts research across a wide range of social policy areas including welfare reform, the role of the community sector, demographic change (family and ageing), and higher education. Her report, Population Ageing Crisis or Transition? was released in December 2001.

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Australian Institute of Health and Welfare
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