The Financial Accountability of Australia's Medicare System: A Generational Accounting Analysis

The financial sustainability of publicly funded health care systems is sensitive to the demographics of ageing populations, which have a significant bearing on their financial management, accountability and reporting of their financial performance. This paper examines historical and current trends in demographic structure of Australia's population that are likely to impact on the financial management and accountability practices affecting Australia'suniversal public health care system (‘Medicare’). The pay‐as‐you‐go financed funding status of Medicare as represented under both currently required, cash‐based accounting principles and proposed accrual‐based accounting principles are criticised for not recognising the obligations of the Australian government under Medicare. An alternative system of generational accounting is proposed that projects the financial management costs of Medicare. Data are taken from both historical trends in expenditure and ageing as well as projected demographics. The analysis implies that there is significant intergenerational‐inequity in the funding of Medicare, which is not recognised under accrual‐based accounting principles that are now being used to evaluate the financial accountability and performance of government entities.