Public expenditure on hospitals: Measuring the distributional impact

Public expenditure on hospitals through the Australian Medicare system plays an important role in the social wage. However, there have been a number of studies that have suggested that current knowledge of the distribution of hospital benefits is still somewhat limited. In addition, it has also been suggested that existing studies may not capture the full extent of the redistributive effects of these in-kind benefits, thereby underestimating benefits to low income groups and overestimating those for high income groups. This has been attributed to the failure of earlier Australian models to capture the impact of the poorer health of persons on low incomes as well as the different patterns of private health insurance and private hospital usage between income groups. Accordingly, in this study, public expenditure on hospitals is re-examined using a combination of data sources rich in information on hospital use and expenditure, health status and socioeconomic characteristics. It was found that public expenditure on hospitals was very pro-poor, with persons in the lowest income quintile receiving five times the expenditure that persons in the top quintile received. However, expenditure on individuals admitted to hospital varied markedly with income groups. People in the lowest income quintile were found to attract the greatest expenditure because they were older, were sicker, had a higher risk of hospitalisation, were least likely to be insured and were most likely to be admitted to a public hospital.