Australia’s health system is running out of hands, not money

Australia spends $270.5 billion a year on healthcare, about one dollar in every ten produced by the economy, and achieves some of the world’s best health outcomes for that investment. But the biggest challenge facing the health system is no longer funding. It is finding enough trained people to care for an ageing nation, according to new research released as the first Baby Boomers turn 80.

The eighteenth report in The Balance Sheet research series examines Australia’s entire health economy, from hospitals and Medicare to aged care, medicines, private health insurance, mental health and the workforce that supports them.

Its central conclusion is straightforward: Australia’s health system is not running out of money. It is running out of hands.

The report argues Australia’s performance compares favourably with almost any developed country. Australians live an average of 83 years, cancer survival has increased from about 50 per cent to 72 per cent over a generation, preventable deaths remain around one-third below the OECD average, and the Commonwealth Fund’s latest international assessment ranked Australia among the world’s three best-performing health systems, placing it first for equity and health outcomes.

By comparison, the United States spends 17.2 per cent of GDP on healthcare, yet average life expectancy remains about four years shorter.

One of the report’s signature findings shows where every health dollar goes. Hospitals receive about $42 of every $100 spent, medicines account for $12.60, general practice receives just $5.40, while prevention attracts only about $2, despite governments maintaining a long-term target of 5 per cent.

The report argues Australia has built a health system that excels at treating illness but consistently underinvests in preventing it.

It also challenges assumptions that population ageing alone will overwhelm public finances. While government health and aged-care spending is projected to reach 10.7 per cent of GDP by the early 2060s, only about 40 per cent of that increase is attributed to ageing. The larger share reflects medical advances, new treatments and rising public expectations.

The paper also revisits Baumol’s cost disease, the long-held theory that labour-intensive industries such as healthcare cannot significantly improve productivity. It concludes Australia’s experience has been different. Productivity Commission analysis measuring outcomes rather than activity found health productivity growing by around 3 per cent annually, roughly three times faster than the wider economy and among the strongest performances in the developed world.

One of the report’s signature findings shows where every health dollar goes. Hospitals receive about $42 of every $100 spent, medicines account for $12.60, general practice receives just $5.40, while prevention attracts only about $2, despite governments maintaining a long-term target of 5 per cent

The report argues the true bottleneck is workforce.

Health care and social assistance already employs 2.56 million Australians, roughly one worker in every seven, making it the nation’s largest employing industry. Within a decade it is expected to account for about 17.4 per cent of all employment.

Yet shortages continue to grow.

Current projections point to a shortage of more than 70,700 full-time nurses by 2035, almost 9,000 GPs by 2048, while psychiatry remains more than 20 per cent below required staffing levels. In 2025, two-thirds of New South Wales’ salaried public psychiatrists lodged resignations during a workforce dispute.

Current projections point to a shortage of more than 70,700 full-time nurses by 2035, almost 9,000 GPs by 2048, while psychiatry remains more than 20 per cent below required staffing levels

Australia is also becoming increasingly reliant on overseas-trained clinicians. Around 60 per cent of newly registered doctors in 2024 received their primary medical qualifications overseas, while the Intergenerational Report projects the care workforce will need to roughly double by 2050.

“Every fiscal projection in this paper is, first, a claim on people,” the report concludes.

The report identifies 2026 as a turning point.

The oldest Baby Boomers turn 80 this year, moving Australia’s demographic challenge from long-term projections into everyday healthcare demand.

Residential aged care admissions average around age 84, meaning demand is expected to accelerate from the early 2030s. Australians aged 85 and over are projected to more than double to 1.28 million by 2041, while dementia cases are expected to rise from 433,300 today to more than 812,000 by 2054.

Although Australians aged over 65 account for only about one in six people, they already occupy roughly half of all public hospital bed days.

The report says recent reforms demonstrate both progress and pressure.

The new Aged Care Act commenced in November 2025, yet within its first year around 88,000 approved Australians were still waiting for home-care services, with a median wait of 245 days. The Federal Government also retreated from planned personal-care co-payments within months after allocating an additional $1 billion.

Medicare, however, shows signs of recovery.

Bulk billing, which fell from a peak of 89 per cent to 77 per cent, recovered to 81.4 per cent after expanded incentives introduced in late 2025. More than 1,400 medical practices shifted to fully bulk-billed care and governments committed $11.4 billion towards restoring a 90 per cent national bulk-billing rate by 2030.

Public hospitals also secured a record $220.3 billion five-year funding agreement earlier this year.

The report argues the biggest remaining blind spot is specialist access, describing outpatient waiting lists as “the queue to join the queue”.

The report estimates that reducing chronic illness among Australians aged 55 to 64 by just five percentage points would add between $25 billion and $30 billion annually to GDP through increased workforce participation

The prevention chapter illustrates both Australia’s greatest success and its biggest missed opportunity.

Daily smoking has fallen from 24 per cent in 1991 to just 5.6 per cent, one of the world’s strongest public health achievements. Australia also remains on track to become the first country to eliminate cervical cancer, potentially by 2035.

Yet obesity now affects roughly two-thirds of Australian adults, bowel cancer screening reaches only 42 per cent of eligible Australians, and demand for preventive therapies continues to outpace existing funding models.

The report concludes that preventing illness generates substantial economic returns.

Introducing a new measure called the Health Dividend, it estimates that reducing chronic illness among Australians aged 55 to 64 by just five percentage points would add between $25 billion and $30 billion annually to GDP through increased workforce participation.

“The question is never whether Australia can afford health,” the report argues. “It is whether it can afford the ill-health it declines to prevent.”

The report distinguishes four separate questions often treated as one.

Financially, Australia can afford its health system. Technologically, new tools, including artificial intelligence, are improving diagnosis and returning valuable clinical time rather than simply cutting costs. Demographically, the ageing wave is now under way. Workforce shortages, however, remain the defining constraint.

Its final conclusion is that Australia solved the twentieth century’s health challenge by helping people live longer.

The twenty-first century challenge, it argues, is finding enough people to care for them once they do.