Healthcare has been a key driver of price increases this year, which makes it timely to look closely at the effect on our retirement tribes.
It is generally true that low-income households spend a larger proportion of their income on necessities compared with high-income households. When considering how you will spend your money, it’s likely that the priorities will be the basic living essentials. A high-income household that can easily meet the basic needs will have money left over to buy non-essential goods.
When we look at our tribes, we can see this happening with a basic such as food. Cash-Strapped Couples (those on full or part Age Pensions who rent) spend 21 per cent of their income on food. Constrained Couples (those on full or part Age Pension who own their home) spend 20 per cent and Affluent Couples (homeowners with private income) 16 per cent. The proportion of income spent falls as the household income rises. It is important to remember that we’re talking about the proportion of income not dollar amounts. Affluent Couples spend more dollars on food than Cash-Strapped Couples, but Cash-Strapped Couples have lower incomes and so spend a larger proportion of their incomes on food.
This same pattern applies in Cash-Strapped households, which spend a bigger proportion of their income compared with constrained and affluent households on two essential categories: housing and domestic fuel and power.
The reverse happens when we look at a category such as recreational spending. For non-essential goods, the proportion of spending rises as income rises. Affluent Couples spend the most on recreation – 20 per cent. Compare this with Constrained Couples (12 per cent) and Cash-Strapped Couples (nine per cent).
The principle that low-income households spend a larger proportion of their income on essential goods breaks down when it comes to healthcare. Healthcare can easily be regarded as a necessity, but among our retired tribes, Cash-Strapped Couples and Singles spend the least, just five per cent. Affluent Couples spend 10 per cent while Constrained Couples spend the most, 12 per cent.
This means that lower-income households view healthcare as a non-essential category that they can cut back on because their budgets won’t stretch that far.
This is concerning for several reasons. Skimping on healthcare is likely to reduce quality of life and, potentially, lifespan. It can also increase the total cost to the health system. If people avoid going to a specialist or other health professional early, then small easily treatable problems can turn into large expensive problems.
One strange aspect of spending patterns on healthcare sees those on very low incomes spending very little on healthcare, as we’ve explained, while those on moderate incomes (Constrained Couples) spend the largest proportion of their incomes – larger even than high-income earners (Affluent Couples and Singles).
This is partly explained by the fact that most retirees can access bulk-billed GP visits and avoid out-of-pocket costs.
And it is also due to the way government healthcare funding has evolved. In recent decades, Australia has reduced its emphasis on direct government spending on specialised healthcare and has increased indirect funding of that area by subsidising private health insurance. Effectively, the Government has substituted spending on Medicare for subsidies for private health insurance.
Even with the subsidies, private health insurance is expensive and the Cash-Strapped tribes simply cannot afford it.
Constrained tribes can afford it, but it comes at considerable cost to their budgets. This is, in large part, why they spend the largest proportion of their budgets on health care. The Affluent tribes also buy private health insurance but given they have larger incomes it represents a smaller proportion of their income.
The costs of healthcare have risen substantially in recent decades – as much as power. In the past 30 years, healthcare has risen to be 3.7 times higher compared with the Consumer Price Index (CPI), which has doubled.
For many, quality healthcare is considered essential, but the reality is that it is increasingly fracturing into a two-tier system.
It might be time for the Government to consider if it is getting a big enough benefit from this strategy or if the $6.4 billion it will spend on subsidies to private health insurers next year might be better put directly into the healthcare system.
While the Cash-Strapped households would be better off if private health insurance subsidies were instead put into Medicare, the Constrained tribes might also benefit if they could access high-quality services without having to buy private health insurance.
With the cost of private health insurance continuing to rise more rapidly than the CPI, it is obviously becoming a growing burden on middle-income retired households.
Do you see healthcare becoming a two-tier system? Or has it reached that point already?