New Zealand’s health system is reportedly “on the brink of failure,” facing a host of challenges including budget overruns, lengthening waiting times, and widespread staff shortages. The government has responded by dismissing the board of Te Whatu Ora (Health NZ) and appointing Lester Levy as commissioner, with a mandate to curtail what he describes as the system’s “bloated” spending. Levy has also emphasized the need for a system “reset.”
However, critics argue that framing the situation as a case of overspending overlooks deeper, more significant issues that are driving the strain on New Zealand’s health system. They warn that this narrative might undermine the viability of the publicly funded health model.
Global and Local Pressures Converge
Many of the pressures facing New Zealand’s health system are not unique to the country. Global shortages in the healthcare workforce have been escalating since the 2000s, affecting numerous health systems worldwide. The COVID-19 pandemic exacerbated these trends, leading to burnout and a significant number of healthcare workers exiting the profession. Those who remain are often overworked and stressed.
These workforce challenges are compounded by other factors: an aging population (both among patients and healthcare workers), increasing demand for health services, expanding treatment options, rising patient expectations, and a growing prevalence of chronic health conditions that require long-term care.
Chronic Underfunding: The Root of the Problem
Despite these global pressures, the most critical factor contributing to New Zealand’s strained health system is long-term underfunding. Contrary to claims of overspending, New Zealand has been remarkably frugal with its health budget. Throughout the 2010s, just over 9% of the country’s GDP was allocated to health, compared to 10%-12% in most comparable countries. In 2020, New Zealand’s per capita health expenditure was US$3,929, significantly lower than Canada’s US$6,215 and Australia’s US$5,802.
This funding gap has led to salary disparities with comparable countries, further exacerbating workforce shortages as trained professionals leave New Zealand for better pay elsewhere. While there is potential for productivity improvements in parts of the health system, these gains would likely be minimal compared to the cumulative impact of past underfunding.
Adding to the complexity is the two-tiered nature of New Zealand’s health system. The 1938 Social Security Act, which established the publicly funded system, aimed to make health services accessible to all citizens. However, primary healthcare is now unaffordable for about one in eight New Zealanders, highlighting significant inequities in access.
Exploring Alternative Funding Models
For more than 80 years, New Zealand’s publicly funded health system has served the country well, despite its two-tiered design flaws. Approximately 80% of the health system is funded publicly through taxation, a model shared with countries like the UK, Spain, and Scandinavia.
Some have suggested that increasing the role of private funding could alleviate pressure on public finances. However, international experience suggests otherwise. The private insurance-based health system in the United States is the most expensive in the world, consuming nearly 18% of GDP. Moreover, the costs associated with private insurance have risen significantly faster than in public health systems.
New Zealand’s own experience indicates that private insurance can burden the public sector, with public hospitals often providing follow-up care for patients initially treated in the private sector. Private insurers manage rising healthcare costs by increasing premiums and tightening eligibility, which can limit access to care.
Health systems reliant on private insurance tend to be less accessible, less efficient, less equitable, and generally produce worse health outcomes. Market-based healthcare does not deliver the expected benefits but does generate predictable downsides.
Another alternative is a social insurance model, where employers and employees contribute to sickness funds, similar to New Zealand’s Accident Compensation Corporation (ACC). In countries like Germany and the Netherlands, where social insurance is prevalent, care is primarily provided by non-government entities. However, research shows that social insurance systems are costlier to administer and come with higher cost pressures than tax-based systems.
In tax-funded systems, funding shortfalls often manifest as visible waiting times and lists. In private insurance-based systems, rationing is based on affordability, making it less visible but equally problematic.
A Call for Proper Investment
Addressing the challenges within New Zealand’s health system requires adequate funding and investment in the people who make the system work—healthcare workers and support staff. Short-term cost-cutting measures are likely to deepen the crisis rather than resolve it.
In the long term, a well-funded publicly funded health system is more efficient and effective than known alternatives. This necessitates a policy commitment to tackle the underlying drivers of the current crisis in a way that aligns with the country’s values of universal access and fairness.
Difficult conversations are needed about how to address underfunding and how to better support and train healthcare workers. The publicly funded health system, as vital now as when it was first established, remains crucial to ensuring all New Zealanders have access to healthcare when they need it.