Duh! Health-cost inflation a reflection of rising health spending.

 

In trying to demonstrate his credentials for a portfolo for whiche is wholly unqualified, Labour’s Grant Robertson argues that because health-cost inflation rises faster than all others measure of inflation, the Government should radically raise the health budget this year.

This is simply absurd.

Has this financial genius ever wondered about the main reason for health costs rising so rapidly?

Has he considered for example that government is virtually a monopsony buyer in health – that is, virtually all the multi-billion-dollar spending in healthcare in New Zealand is undertaken by government. (Spending on this Ministry being the second-biggest line item in the Budget; spending by private agencies being trivial by comparison.)

And every year in recent years, government health spending has been increased.

Last year for example it was raised by an extra $1.7 billon to a record $15.9 billion.

Yet for all the extra spending, little more has been bought. The reason for this is … the largely unsurprising fact that as the spending increases, supply in this very limited and almost completely hampered market does not. (Indeed, in many cases can not.)

So as even a child might explain to you, one is confronted with the realisation increasing spending does not necessarily increase supply—indeed, it simply increases the amount suppliers earn for their suppliers. Indeed, it is more precisely true that the more is spent by the government on health, the higher health-cost inflation will rise.

So, once understood, do you want to offer any obvious suggestions as to how health-cost inflation might be best brought down?

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