6. Sensitivity Analysis
6.1 We have run the models under a variety of scenarios within a range of reasonable assumptions. The most significant impacts arise from changes in assumptions around mortality and health cost increases. The results under 5 alternative scenarios have been included here. The assumptions which have been altered are shown in the table below.
| Scenario | Future Mortality Improvement¹ | Age Adjustment for Mortality² | Excess Health Inflation³ |
|---|---|---|---|
| Base | 0 | 3 | 0.7% |
| Scenario 1 | 100 | 3 | 0.7% |
| Scenario 2 | 100 | 0 | 0.7% |
| Scenario 3 | 0 | 0 | 0.7% |
| Scenario 4 | 0 | 3 | 0.4% |
| Scenario 5 | 0 | 3 | 1.0% |
- Three possible options for future mortality improvement are provided for in the model. The base model assumes no mortality improvement in future. The alternatives are that mortality improves in line with the improvements observed over the past 100 years (‘100’) or that it improves in line with the improvements observed over the past 25 years. Improvement rates over the past 25 years have been greater than over the last century and it is doubtful whether they could be sustained over the extended projection period incorporated in the model.
- Applicants under the CPV program must undergo a health check. Combined with the fact that the people in these populations are in a position to migrate, this suggests that the populations should be somewhat healthier than the Australian population on average. This can be allowed for by assuming that they behave like a person who is somewhat younger. The base scenario assumes they will have the attributes of someone three years younger than they actually are.
- Excess health inflation is the number of percentage points by which health costs are assumed to exceed GDP growth.
6.2 The results under each scenario are shown below.
| Scenario | Present Value of Expenditure ($m) |
Percentage Change |
|---|---|---|
| Base | 884 | - |
| Scenario 1 | 974 | 10.2% |
| Scenario 2 | 876 | -0.8% |
| Scenario 3 | 796 | -10.0% |
| Scenario 4 | 856 | -3.2% |
| Scenario 5 | 914 | 3.4% |
6.3 The following chart shows how the total cost is split between the various components under each scenario.
6.4 The change in the present value of expenditure reflects a change in both the magnitude and timing of the underlying cashflows, as illustrated in the following chart.
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