Principles for reforming public health insurance after 'Mediscare'

Principles for reforming public health insurance after 'Mediscare'

The federal government can't shy away from tackling Australia's rapidly rising healthcare costs.

Malcolm Turnbull's promise to listen to the people and demonstrate his government's commitment to Medicare doesn't need to mean relaxing cost controls, letting health spending continue to increase faster than GDP or allowing service providers to exploit their powerful positions.

It does mean he must clarify the principles that define his commitment to Medicare. And he should encourage his Health Minister, Sussan Ley, to continue the hard yards on reform she began a year ago, replacing the simplistic and doctrinaire approaches of Tony Abbott's commission of audit and 2014 budget that gave such traction to Labor's "Mediscare" campaign.

Malcolm Turnbull blamed Labor's "Mediscare" campaign for the loss of government seats, but Coalition health policy under Tony Abbott had been misguided.

Malcolm Turnbull blamed Labor's "Mediscare" campaign for the loss of government seats, but Coalition health policy under Tony Abbott had been misguided.Credit:Peter Rae

The Canadians have demonstrated the value of articulating the principles behind Medicare. Our principles may differ a little from Canada's and we might not need to follow Canada's practice of putting them into legislation. But a government statement about the principles would help to stop the sort of nonsense we saw in the Mediscare campaign and, if these principles are widely accepted, sensible reform may once again be possible.


In my view, the key principles are:

A mock Medicare card distributed by trade unions during this year's federal election.

A mock Medicare card distributed by trade unions during this year's federal election.

  1. Universal coverage: all Australians should have access to health services according to their health needs.
  2. Equitable financing: the health system should be funded according to people's capacity to pay.
  3. Efficiency and effectiveness: government support for the system should be based on cost-effectiveness in terms of health outcomes.
  4. Consumer and provider satisfaction: the system should be oriented to patients and consumers, providing safe, high-quality and convenient healthcare, while respecting the professionalism of those providing the service.

Medicare is a national health insurance system that the Commonwealth must own. But it isn't a national health system like Britain's. Our health services are delivered by the private and public sectors. To an extent, Medicare's health insurance has been delivered in part by the private sector as well – and parts of the payment system, such as its IT support, have long been outsourced. So the term "privatisation" is almost meaningless when applied to Medicare.

The main driver behind Medicare's cost pressures is the moral hazard involved when consumers don't need to pay for services that are insured. This hazard applies for all insurance but is exacerbated in the health insurance business by information asymmetry and the effects of new technology. Doctors and patients inevitably take advantage of the third-party payer, mostly with no egregious intent: patients rely on their doctors' expertise and doctors want the best for their patients.

As Abbott and his commission of audit proposed, one way of limiting this cost pressure is to increase co-payments. Yet co-payments in Australia are already very high across the health system, to the extent that the New York-based Commonwealth Fund reports they impose a more serious obstacle to access to care here than in most comparable countries.

A more effective approach consistent with the principles is to use supply-side controls. Ley was focusing sensibly on this approach last year. For example, the Medicare Benefits Schedule review taskforce was examining all the services on the schedule to see whether they were justified and whether the price reflected their effectiveness. A firm review of the Pharmaceutical Benefits Scheme, taking more advantage of generic medicines, could deliver significant savings, too. The government's primary healthcare advisory group was also examining options to reduce the MBS's reliance on fee-for-service, which can encourage overservicing.

Cartoon: Simon Letch

Cartoon: Simon Letch

These reviews could offer some clever initiatives that save money but also improve outcomes, and may even improve access. Former health minister Michael Wooldridge's immunisation package a decade and a half ago provides a good illustration. It reversed a serious decline in immunisation rates by imposing a series of sticks and carrots. Among the carrots were rewards for GPs who achieved high rates of child immunisation among their patients. Doctors welcomed the measure. Interestingly, the reward was not a payment for immunising but a grant in respect of all the children they had among their patients – i.e. a capitation payment, not a fee-for-service. It was a small step towards a blended payment, complementing MBS's fee-for-service rewards for effort with capitation payments that reward outcomes.

It isn't hard to think of other areas that may benefit from such initiatives, such as appropriate care for those with chronic illnesses or appropriate screening of high-risk patients. These sorts of initiatives could be an alternative to ending the current MBS fee freeze. Making such payments conditional on bulk-billing concessional patients and on some co-payment cap for other patients could also improve access to GPs in non-bulk-billing locations.

Another challenge for our health system is ensuring it delivers the right mix of care for the chronically ill and frail aged, allocating resources optimally. This requires a more integrated system with a stronger primary healthcare infrastructure. Sadly, politicking by the Rudd/Gillard governments and Abbott led to stop-start progress in this area. Some firmer commitment by Turnbull would be widely appreciated, supporting the new primary health networks as they develop partnerships on the ground with regional hospital networks, looking to reduce unnecessary hospital visits and improve the effectiveness of care.

Abbott's attempt to cost-shift public hospital responsibility to the states was another step in the wrong direction. The Commonwealth needs "skin in the game" if it's to promote efficiency and a more integrated health system. The Independent Hospital Pricing Authority is central to identifying efficient hospital prices and Commonwealth funding based on these prices is essential to driving reform.

Doctors and patients inevitably take advantage of public health insurance, mostly with no egregious intent.

There remains a strong case in time for the Commonwealth to have full financial responsibility for our national health insurance system. Apart from reducing cost-shifting incentives and facilitating a more integrated system, it would open up better opportunities for a coherent approach to private health insurance and its relationship with Medicare.

Again, Ley seemed on the right track when she asked Graeme Samuel to lead some consultations on PHI last year. We are yet to see the results of that, but the Mediscare campaign seems to have left Labor in a totally confused position on PHI.

Labor could pursue a coherent policy in line with its recent rhetoric if it committed to abolishing any public support for PHI. PHI would then play just a residual role, supplementing Medicare for those willing to pay for it. But Labor is talking only about further restrictions on the PHI rebate, and is allowing the Medicare levy surcharge exemption to continue to play an increasing role in crudely subsidising the industry.

The Turnbull government has the opportunity to take a different but equally coherent approach to PHI consistent with Medicare principles. Samuel's background (which includes chairing the Australian Competition and Consumer Commission) suggests he may identify reforms to increase competitiveness in our PHI system and in the delivery of health services, complementing the Harper review. Current subsidies could be redesigned to reflect more properly the costs PHI funds meet that genuinely replace those otherwise met by Medicare, and to ensure they and the related regulatory arrangements promote efficiency and contain PHI premiums (and co-payments). In time, this could facilitate renewed consideration of the "Medicare Select" option that the Bennett inquiry provided the Rudd government in 2010.

The better funds now invest in analysing and addressing the health risks their members face and the financial risks the funds face. The Commonwealth should also invest in this, given its overall responsibility for national health insurance. Privatising the payments system – the trigger for Labor's Mediscare campaign – was never a sensible priority as it offered at-best marginal efficiency gains within the tiny proportion of Medicare spending devoted to payment administration. The sensible priority is to build the payment system's capacity to manage Medicare's financial risks and to link MBS, PBS and public hospital data to deliver better and more efficient services.

Andrew Podger, a former federal Health Department secretary and public service commissioner, is a professor of public policy at the ANU.

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