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Health in the CPI

The health group had a combined expenditure weight of 5.09 percent in the consumers price index (CPI) at the June 2008 quarter. The sources and methods used to compile the health group are explained in this article.

Position in the CPI structure

The health group of the New Zealand Household Expenditure Classification represented 5.09 percent of the CPI at the June 2008 quarter.

Table 1

Expenditure weight for health
June 2008 quarter
Group, subgroup, or class Level Weight (percent) Examples of items within class
Health Group 5.09
Medical products, appliances, and equipment Subgroup 0.98
Pharmaceutical products Class 0.61 Prescription medicines, oral contraceptives, and over-the-counter products such as painkillers, cough and cold preparations, sunscreen, and vitamins
Other medical products Class 0.03 Bandages and contraceptive supplies (other than oral contraceptives)
Therapeutic appliances and equipment Class 0.34 Corrective glasses and contact lenses
Out-patient services Subgroup 3.32
Medical services Class 1.97 General practitioner, specialist, and optometrist consultation services
Dental services Class 0.94 Dental examination, filling, and denture services
Paramedical services Class 0.41 Medical laboratory (eg scanning) services
Hospital services Subgroup 0.78
Hospital services Class 0.78 Private hospital services

Expenditure weight estimation

Over 85 percent of the expenditure weight for the health group (particularly the out-patient services class and the hospital services class) was derived from sources other than the 2006/07 Household Economic Survey (HES). Sources of information on expenditure include the Ministry of Health, the Pharmaceutical Management Agency (Pharmac), government administration data, and market research information.

The expenditure weights allocated to the various health services represent out-of-pocket spending by private households, and spending on claims made, on behalf of private households, by health insurance companies to health service providers (Further details on household expenditure funded by insurance claims is contained in the price index news article – Insurance services in the CPI). The expenditure on health services was adjusted to exclude the share of health insurance claims attributable to employers that subsidise health insurance premiums of paid employees.

GST sales data was used to provide information on the total income of medical service providers (broken down by type of provider). Information obtained from the Ministry of Health was used to remove the part of providers' income funded directly by government (such as subsidies for general practitioner consultations).

The 2006/07 HES, which collected detailed information on the spending patterns of about 2,600 households, was another key source of information used to determine the relative importance of some parts of the health group.

Item and sample selection

The health group contains a wide range of representative goods and services purchased by households. These goods and services were selected for the CPI basket based on expenditure data from the HES and other sources. Examples of the health goods and services in the CPI basket are included in table 1.

The samples of prescription medicines for both adult and child prescription charges were selected based on information from the New Zealand Health Information Service (NZHIS) and Pharmac. A separate sample of medicines is used to represent each of the three age groups that feed into these two basket items: child under 6 years, child aged 6–17, and adults.

The sample of medicines for each of the age groups comprises the most commonly prescribed medicines in each of the most significant therapeutic groups. First, the data was divided by therapeutic group. Those therapeutic groups that contained less than 1 percent of the total number of prescription items were discarded. For each of the rest of the therapeutic groups a minimum of three medicines was selected. Also, selection within each therapeutic group was based on the number of medicines necessary to cover at least 50 percent of the total prescription items in that group. In some cases the minimum selection of three medicines covered over 50 percent of the group total, whereas in other groups it was necessary to include up to the top nine medicines before the 50 percent threshold was met.

For both the 'adult' and 'child 6–17' age groups, those medicines that had high expenditure but a low number of prescription items and had not already been included in the sample of medicines, were included in the final sample.

The sample of contraceptive pills was selected in the same way to represent the genito-urinary therapeutic group.

The next step was to determine a representative formulation (ie a description of how the medicine is taken, and its size and strength) for each medicine. The most popular formulation for each medicine was selected for each of the samples.

Data from Pharmac was used to calculate the average prescription quantity. For contraceptive pills, a six-month supply is priced.

There are about 75 medicines in the 'adult' sample, about 50 medicines in the 'child 6–17' sample, and about 30 medicines in the 'child under 6' sample. There are about 10 medicines in the contraceptive pills sample.

Health cards include the Community Services Card, the High Use Health Card, and the Pharmaceutical Subsidy Card. Community Services Cards entitle users to a subsidy on general practitioner visits and prescription charges. High Use Health Card holders receive lower prescription charges and a subsidy for casual visits to a medical practice they are not enrolled in, or for after hours care. Community Services Cards give subsidies to all family members. The High Use Health Card is for an individual. The Pharmaceutical Subsidy Card allows the cardholder and named family members to pay a lower amount on government prescription charges.

The impact of primary health organisations (PHOs) is incorporated into the 'child 6–17' and 'adult' samples.  Two prices are collected each quarter for each medicine. One price is for those patients who are PHO enrolled and have no health card, and the other is for those patients that are not PHO enrolled and have no health card. For the 'child under 6' and contraceptive pill samples, it is not necessary to collect PHO discount prices because prices for these groups are not affected by PHO enrolment.

PHOs are funded by district health boards to support the provision of essential primary health care services through general practices to those who are enrolled with PHOs. A PHO provides services either directly or through its provider members.

Prices for medicines in the 'child under 6', 'child 6–17', and 'adult' age groups are also used to calculate prescription charges incorporating the use of Community Service Cards, High Use Health Cards, and Pharmaceutical Subsidy Cards.

Price collection

The prices of health group goods are collected by Statistics NZ's staff through observation at retail outlets, by postal survey, and via the Internet. Pharmaceutical and disposable contact lens prices are collected from Internet websites, while prices for over-the-counter products – such as painkillers, cough and cold preparations, sunscreen, and vitamins – are collected through observation at health stores, chemists, and supermarkets. Most health services (such as general practitioner, medical specialist, and optometrist consultation fees) and some health products (such as permanent contact lens prices) are collected via quarterly postal questionnaires.

Health goods prices are directly observed either by price collectors visiting suitable retail outlets in the 15 CPI urban areas: Whangarei, Auckland, Hamilton, Tauranga, Rotorua, Napier-Hastings, New Plymouth, Wanganui, Palmerston North, Wellington, Nelson, Christchurch, Timaru, Dunedin, and Invercargill, or by visiting New Zealand Internet websites.

Most prices are collected quarterly, while health goods purchased at supermarkets are collected monthly alongside the food and non-food grocery price collection. Price collectors visit about 75 supermarkets, about 25 health stores, and about 45 chemists. Items priced at chemists include: vitamins, painkillers, plasters, and condoms, which are priced at other outlets as well.

Postal questionnaires for health services are sent to about 40 dentists, about 40 opticians, about five scanning service providers, about 45 medical specialists, and about 20 private hospitals.

Postal questionnaires are sent to about 85 general practitioners. Charges for consultations are collected for patients who are enrolled in a PHO and hold a current Community Services Card.  Prices are also collected for patients who are enrolled in a PHO but are not eligible for a Community Services Card or a High Use Health Card.  These prices are collected for a child aged under 6, a child aged 6–17, and for a range of adult age groups.


For items collected monthly in the health group, prices are averaged over the quarter for inclusion in the CPI.

To calculate these averages, monthly regional average prices for each item are obtained by outlet-weighting the prices collected at different outlets within each region. The monthly regional average prices are used to calculate quarterly regional average prices, by weighting each monthly regional average price by the number of days in the month in which it was collected. This is called day-weighting. All the regions are aggregated to obtain the New Zealand quarterly index by weighting together regional price movements from the base (June 2008) quarter to the current quarter, using regional population weights.

For other health products, and some health services collected quarterly via postal questionnaire, such as private hospital fees and general practitioner fees, the elementary aggregate indexes for the 15 regions (calculated as above for the monthly items, except that the day-weighting step is not required) are then combined to calculate New Zealand item-level indexes. These use regional price movements weighted by regional population-weighted shares of the national expenditure weight. Each region is assumed to have the same spending pattern (that is, the same goods and services are price-surveyed in each region and they are given the same relative importance within each region). The population of each regional council area (or a proportion of it) is assigned to the most appropriate of the 15 urban areas priced in the CPI.

Prices for pharmaceutical prescription medicines and oral contraceptives are national prices and used to directly calculate the New Zealand item-level index. Dental services, medical specialists, and medical laboratory services are also used to directly calculate New Zealand item-level indexes. This is because limited sample sizes do not support robust estimation at the 15-region level.

Contact lens prices are collected via both postal questionnaires and Internet websites. The national average price indicator for soft contact lens prices collected from the Internet is combined with the elementary aggregate indexes for permanent contact lenses from the 15 regions. These are then both used in calculating the New Zealand item-level index for contact lenses overall.

Quality assurance

The aim of the CPI is to measure the price change of the same product at each sampled outlet or business over time. In practice, sampled products may become unavailable, may change, or may become unrepresentative. When this occurs, there may be a change in quality and an adjustment is made so that only the estimated 'pure' price change is shown in the CPI. For example, a price increase (decrease) that is deemed to be purely the result of better (poorer) quality materials or service should be adjusted for and the price change not shown.

External influences on prices

Many goods and services in the health group are subject to government subsidies. Changes in government subsidies can significantly affect the prices collected for the CPI, which are those paid directly by households (or on behalf of households, by health insurance companies). In particular, prescription pharmaceuticals, medical services, and paramedical services are affected by government subsidies.

Subsidies for pharmaceuticals are managed by Pharmac via the Pharmaceutical Schedule, a list of approximately 2,600 prescription medicines and related products subsidised by the Government. Changes to the schedule occur regularly as new medicines are introduced, old medicines are delisted, and subsidies are adjusted. Enrolment in PHOs also impacts on prices for prescription medicines faced by consumers.

For fully subsidised medicines the patient 'co-payment' (or 'government prescription charge') is the price paid by consumers, and ranges up to $15 depending on PHO enrolment, the age of the patient, the patient's health card status, and the type of medicine. For example, fully subsidised oral contraceptives have a maximum patient co-payment of $3. However, for partly subsidised medicines the final price paid by consumers is equal to the patient co-payment plus a manufacturer's surcharge.

When changes in subsidy occur between therapeutically equivalent medicines, this complicates the measurement of price change experienced by consumers. For example, the price to the consumer of medicine A increases because it moves from being fully subsidised to partly subsidised. Also, a therapeutically equivalent replacement, medicine B, is introduced at a fully subsidised price. Consumers and their doctors may for a period of time have a choice between the two. Some consumers will experience the price increase of medicine A, and some, who immediately switch to medicine B, will not.

When a medicine is no longer fully subsidised because it is to be superseded by a fully subsidised therapeutically equivalent replacement, an adjustment is made that accounts for the timing of the patient changeover from the old brand to the new brand of the medicine. This will show in the index as a price increase when some patients are still on the old (now partly subsidised) drug. As these patients move onto the fully subsidised drug, a subsequent price decrease will be shown. Depending on the timing of the subsidy change only a portion of the price change is shown in each quarter during the transition period.

In practice, this means that when a sampled medicine moves from full to partial subsidy the price increase is included in the index, but with a reduced weight. The remainder of the weight will show any change from the fully subsidised price of the old medicine to the fully subsidised price of the new replacement. After the changeover period, when the old medicine is removed from the sample (as it is delisted from the Pharmaceutical Schedule), its entire weight is applied to the new replacement resulting in a price decrease in the index. This contributes some short-term volatility to the CPI pharmaceutical products class-level index.

If a partly subsidised medicine’s price increases (decreases), yet remains partly subsidised, it is typically shown as a price increase (decrease) in the index. If a partly subsidised medicine becomes fully subsidised, the full price fall is reflected in the index.

All prescription medicines, including contraceptive pills, that are price surveyed for the CPI are subject to government subsidies. Unsubsidised prescription medicines are available but are not price surveyed for the CPI.     

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