Health financing

Budget Review 2011-12 Index

Budget 2011–12: Health financing

Rebecca de Boer

The Commonwealth will spend around $15.4 billion to support state health services in 2011–12.[1] This is the sum total of the National Healthcare Special Purpose Payment (SPP) and payments under health-related National Partnership Agreements (NPAs) and is an increase of $1.049 billion from the previous year.[2]

The budget papers also set out how the payment structures will work under the new arrangements for health reform agreed by the Council of Australian Governments (COAG) in February 2011.[3] In reaching this agreement with the states and territories, the Gillard Government abandoned the more contentious aspects of the proposed arrangements that had been negotiated by the Rudd Government, such as the Commonwealth’s retention of some GST revenue to pay for health care and the Commonwealth taking full funding and policy responsibility for primary health care.

Currently, the majority of the Commonwealth’s contribution to state health services is through the National Healthcare SPP. This will cease in 2011–12 and National Health Reform funding will commence from 1 July 2012. This will comprise of base funding equivalent to the existing National Healthcare SPP and efficient growth funding from 1 July 2014. As part of the new arrangements for health reform, the Commonwealth will pay for 50 per cent of the ‘efficient’ growth associated with hospital costs. Introduction will be phased, beginning with 45 per cent in 2014–15 and 50 per cent in 2017–18. This funding will be calculated according to the ‘efficient price’ determined annually by the yet-to-be established Independent Hospital Pricing Authority.[4] National Health Reform funding will be paid into a national funding pool for public hospitals.[5]

Payments under NPAs will continue under the new arrangements. In 2011–12 payments of around $2.6 billion will be made to the states through health-related NPAs. These include a new NPA for mental health introduced in this Budget, estimated at $201.3 million over five years, with $21.4 million to be spent in 2011–12.[6]

The proposed new arrangements for payments to the states for state health services that will take effect in 2012, that is, through a combination of a SPP and various NPAs, do not appear to differ materially from the current arrangements that were put in place in the 2008–09 Budget. The main difference is that the National Healthcare SPP will be known as ‘Health Reform Funding’ from 2012–13 and will be paid into a national pool. It remains to be seen whether this approach will improve the accountability and transparency of health funding.

As part of the arrangements agreed by COAG, the Commonwealth will take full funding and policy responsibility for aged care.[7] The proposed transfer of policy and funding responsibility for aged care is expected to be budget neutral. However, the mechanism to achieve this has not yet been finalised.[8] Adjustments will be made either to the National Healthcare SPP or the National Disability SPP.[9]

Discussions between the states and the Commonwealth about the final details of the new agreement are continuing but the National Health Reform Agreement is due to be signed by July 2011.

New program and grant funding arrangements in the Department of Health and Ageing

The Department of Health and Ageing undertook a strategic review during 2010–11. One outcome of the review is the consolidation of various program and grant funding arrangements into 18 flexible funds, and the transfer of two programs to Cancer Australia and the National Medical Health and Research Council. This is expected to save $53.4 million over four years, which will be redirected to support other government priorities.[10] The stated rationale for this approach is to: reduce red tape for program and grant recipients, provide greater flexibility when responding to emerging policy challenges and achieve better value for money and evidence-based funding.[11] However, it is not clear at this stage what mechanisms or processes will be used to achieve these objectives and how they will be measured as the budget papers do not outline any accountability measures for the administration and expenditure associated with these funds.

The consolidation of these funds will take place on 1 July 2011. Existing programs and grants will be funded until 30 June 2012 or until the current agreement expires (whichever is later).[12] The budget papers state that there will be no net reductions in funding for these programs.[13] The funds have been categorised as either ‘grant related’ or ‘non-grant related’. The intention of non-grant related funds is to achieve streamlined administration and greater policy flexibility.[14] These funds are also consistent with the Government’s approach to more flexible funding arrangements in some other parts of the health portfolio. For example, in primary care, incentives that were previously paid to general practice will now be administered by the ‘Practice Incentives for General Practices Fund’.[15] While at this stage it is not clear how the new payment arrangements will be administered, consultation with health professionals is due to commence in mid 2011.[16]

The strategic review also proposed the streamlining of financial and human services, improving the governance of IT spending and the introduction of shared corporate services across the Department.[17] These changes are expected to result in staff reductions of around 160 in 2011–12 and 260 in 2012–13. The budget papers note that the savings generated from these staff reductions will be redirected into new measures in health policy areas.[18]

[1].       Australian Government, Budget measures: budget paper no. 3: 2010–11, Commonwealth of Australia, Canberra, 2010, p. 22, viewed 11 May 2011,

[2].       Ibid, p. 22.

[3].       Council of Australian Governments (COAG), COAG communiqué: 13 February 2011: Attachment A: Heads of Agreement – National Health Reform, viewed 13 May 2011,

[4].       Budget measures: budget paper no. 3: 2011–12, op cit, p. 5.

[5].       Budget measures: budget paper no. 3: 2011–12, op cit, p. 23.This reflects what was agreed in the ‘Heads of Agreement – Health Reform’ agreed at COAG in February 2011.

[6].       Refer to Table 2.3, Budget measures: budget paper no. 3: 2011–12, op cit, p. 22.

[7].       COAG Communiqué: 13 February 2011, op cit.

[8].       Budget paper no.3: 2011–12, op cit, p. 65.

[9].       Ibid.

[10].     Australian Government, Budget measures: budget paper no.2: 2011–12, Commonwealth of Australia, Canberra, 2011, p. 218, viewed 12 May 2011,

[11].     Australian Government, Portfolio budget statements 2011–12: budget related paper no. 1.11: Health and Ageing Portfolio, Commonwealth of Australia, Canberra, 2011, pp. 48–9, viewed 12 May 2011,

[12].     Ibid.

[13].     Ibid.

[14].     Ibid, p. 49.

[15].     Ibid, p. 823.

[16].     Ibid, p. 221.

[17].     Ibid, p. 50.

[18].     Ibid.