Developing an implicit price deflator for New Zealand's health sector

The paper develops a sectoral approach to the analysis of New Zealand's historical health expenditure statistics, establishing the feasibility of developing an implicit health-sector price deflator. Constructing the index requires reliance on own-price indices that do not adjust for productivity changes, and on some imputed health expenditure figures. Despite these limitations, the sectoral approach generates better insights concerning resource allocation trends in health than does the Ministry of Health's approach of generating constant-dollar health expenditure estimates through deflation of current dollars by the consumer price index. The sectoral estimates indicate that health prices relative to prices in other parts of the economy increased during 1961-1974, and declined during 1974-1993, although price movements were volatile by sub-period in the later years. The sectoral data also indicate that the growth rate in constant-dollar health expenditure per capita was relatively constant during the 32 years succeeding 1961, negating the widely held view that the growth rate in per capita utilisation increased during that period. Finally, the sectoral data indicate that, while the financial burden of providing health care has been generally increasing since 1961, the real burden reflecting the allocation of resources to health started increasing only in the mid-1970s, in the context of a decline in New Zealand's secular growth rate in gross domestic product.