Total health expenditure in Australia grew by over 7 per cent between 2004-05 and 2005-06 to $87 billion or $4,200 per person according to a new report by the Australian Institute of Health and Welfare (AIHW).

Head of the Institute's Expenditure and Economics Unit, Mr John Goss, said health expenditure as a proportion of gross domestic product (GDP) was 9.0 per cent, down slightly from 9.05 per cent the previous year, and up from 7.5 per cent in 1995-96.

'Our health to GDP ratio is comparable to New Zealand, is more than the UK, and is considerably lower than the USA, which in 2005 was 15.3 per cent of GDP,' Mr Goss said.

The report, Health expenditure Australia 2005-06, shows that after adjusting for inflation, total health expenditure increased 3.1 per cent in 2005-06, compared to annual average growth in the decade to 2005-06 of 5.1 per cent.

The areas of expenditure that showed relatively high real increases (after allowing for inflation) were research (7 per cent), public hospital services (6 per cent), community health (5 per cent), aids and appliances and other health practitioners (4 per cent each).

The most noticeable slowing in real expenditure growth was in medications. This increased by just 1.6 per cent in 2005-06, against an annual average real increase of 8.6 per cent over the last decade.

The report showed the majority of spending in health was funded by governments (68 per cent), with the Australian Government contributing 43 per cent. State, territory and local governments contributed 25 per cent. The non-government sector (individuals, private health insurance and other non-government) funded the remaining 32 per cent.

In real terms, the Australian Government's funding grew by 0.7 per cent in 2005-06. State, territory and local governments funding grew by 7.6 per cent and non-government funding by 2.9 per cent.

Key drivers for this change were the high increase in expenditure on public hospitals, which was largely borne by state and territory governments, and the slowing of expenditure in medications, which is primarily funded by the Australian Government.

Between 1995-96 and 2005-06, the Australian Government share of public hospital funding decreased from 45per cent to 41 per cent. State and territory government funding during this period increased from 46 per cent to 51 per cent.

In 2005-06, individuals spent an estimated $15.4 billion on health goods and services (17 per cent of total health expenditure): $5 billion for medications; $4 billion for dental services, $2 billion for aids and appliances and $1.7 billion on medical services.

Real growth in expenditure by individuals between 1995-96 and 2005-06 was 6.0 per cent per year, 1.2 percentage points above the real growth in recurrent health expenditure (4.8 per cent).

In previous editions of Health Expenditure Australia, high-level residential care expenditure was included as health expenditure.

This expenditure has been reclassified to welfare services, which reduces the health expenditure to GDP ratio by 0.6 percentage points to 9.0 per cent of GDP, and correspondingly increases the welfare services expenditure to GDP ratio.