The last thing the Australian health system needs is for governments to throw more money at it from either out of general revenue or by introducing new hypothecated taxes to supplement the existing Medicare Levy.
The NSW Nurse Association’s crazy idea for a Financial Transaction Tax to fund their favoured health boondoggles is a typical example of the ‘magic pudding’ thinking that has turned health into the nation’s biggest public policy mess.
Health already devours over 10 per cent of GDP each year and 70% of health funding is funnelled through federal and state government programs. Because health dollars are not spent efficiently the community is going without other goods and services we need and want. Ironically, we also forgo the most important health services due the madness of the Medicare and the long queues for hospital treatment which the operation of the system creates.
This cannot continue given Australia’s rapidly ageing population. The federal government’s Intergenerational Reports have repeatedly informed us that Medicare is unsustainable. Rising health spending is set to impose unaffordable burdens on future generations as a result of demographic change, technological advances and ever-escalating and unrealistic community expectations.
The problems with Medicare are systemic and will prove to be intractable without fundamental reform of the way healthcare is financed in this country.
In 2008-09, the total cost to the federal budget of all Medicare-funded GP and other non-hospital based services was over $15.5 billion. This was almost double the cost of the private hospital system and approximately half as much as combined Commonwealth and State government spending on public hospitals.
For every $1 spent on these Medicare-funded medical services the total government subsidy for hospital care was only $1.99.
By comparison, in 1967-8, for every $1 spent by Australian governments subsidising medical services, $4.83 was spent subsidising hospital services. Hence, in those days, there were no hospital queues to rival the one third of emergency patients who currently wait longer than eight hours for admission for a bed and the one-in-three elective patients who current wait longer than clinically recommended for surgery.
The changes in spending patterns certainly reflect clinical advances, such as tests that no longer need to be performed in hospital. But they also reflect the impact of the establishment of Medicare in 1984 and draws attention to the faulty principles which make our much-vaunted ‘free and universal’ system an unsound and poorly-constructed insurance scheme.
In essence, Medicare is a ‘reverse insurance’ scheme which provides ‘inverse care’ and inadequate protection against major illnesses. Hence the minority of patients with the most serious needs are forced to wait for treatment at overcrowded public hospitals which have capped budgets, while the majority with minor needs receive ‘free’ or highly subsidised GP visits and other medical services on demand under the uncapped Medical Benefit Scheme.
Medicare is not just wasteful but also inequitable due to the way scare resources are misallocated on a non-needs basis. It encourages unnecessary consultations and tests because consumers, even ‘worried well’ and the most well-off, can use their Medicare cards to either bulk bill all the cost of medical services to the federal government or to receive a rebate covering a significant proportion of the cost of each service. These services are overused because Medicare over-subsidises the minor healthcare costs associated with the often trivial health needs of millions of Australians.
However, the consequences are far from trivial and have led directly to the recurring political nightmare the public hospital ‘crisis’ has become.
In all ‘free’ taxpayer-funded health systems access to care has to be rationed by some means because government budgets are limited amid a multitude of competing priorities. The best that can be hoped for is that the rationing will be done on an ethical and equitable basis. But that is not the case in Australia.
To offset high, ever-increasing and open-ended spending on bulk billing and control the total cost of health to the federal budget, the Commonwealth has tightly limited the level of funding made available to states for public hospitals which treat the sickest and poorest patients, many of whom cannot afford private hospital cover. The predictable response by financially over-stretched state governments has been blunt expenditure controls—frontline budget caps and bed cuts—to restrict access to hospital services.
The universal entitlement to bulk billing is a hugely popular ‘sacred cow’, but this has got nothing to do with protecting the fabled ‘fair go’. Politicians in both the major parties love bulk billing because it’s a politically rewarding way to distribute financial handouts to the maximum numbers of voters. Too much attention is paid to preserving the rate of bulk billing as if it is the key measure of the health of the system, when it is actually the cancer at the heart of Medicare.
The obvious conclusion is that many Australian patients would be better off if the money squandered on bulking bill was used to fund public hospital services. But redirecting money into bureaucratic and inefficient public hospitals, which in states like NSW and Queensland are run on a command model reminiscent of the Soviet Union, is no solution.
We know that in bureaucratised entities, additional inputs do not produce a proportional increase in outputs because by the time additional funding flows through the black hole of the bureaucracy, very little of the additional money makes it to the frontline as extra services. The Blair Government’s massive increase in spending on the UK NHS merely transformed a lower cost, low performing system into a higher cost, low performing system.
Hence it was Blair himself who wrote in his autobiography that ‘there's no way the healthcare systems of developed nations can survive at a reasonable cost with a minimum level of equity in provision without putting individual responsibility and public health policy at the centre of the debate.’
To fix the health mess in Australia before it overwhelms government budgets we need to stop hearing clichés about ‘ending the blame game’ and stop treating health primarily as a social issue. Health must instead be dealt with as an economic problem requiring a comprehensive solution to funding and access distortions.
The way forward is to scrap Medicare and replace it with a part publically-funded, part self-funded, insurance scheme, which incorporates the key consumer-centred principles of choice, competition, and individual responsibility.
This could be achieved by splitting existing health funding into two new streams.
One stream would fund a national system of personal Health Savings Accounts (HSAs) which individuals would use to pay for minor services and more predictable health costs out of their own pockets to prevent overuse.
The second stream would fund a national risk-rated system of insurance ‘vouchers’, which individuals would use to purchase a minimum-package of cover for higher cost catastrophic and chronic treatments from competing health funds. The funds would be responsible for purchasing services on our behalf from competing providers with prices fully contestable.
A combination of HSAs and actuarially-sound vouchers would also allow for the introduction of a rational system of insurance deductibles paid for out of health savings. Restoring price signals for hospital care as well would prevent overuse of these services as well, given that some surgical procedures have a discretionary aspect.
An optimal system of this kind would prove sustainable as well, since we would pay for our lifetime health care costs by saving overtime, instead of expecting governments to do the impossible and stump up enough cash each year to pay for all the health care we all want to consume.
As well as ending waste and promoting cost-effectiveness, the introduction of market forces into health sector would boost productivity and encourage innovations that lower costs and improve quality. As in other areas of the economy subject to structural reform, the community will end up receiving more and better services for what, as the cost pressures of coming decades hit, will be our increasingly precious health dollars.
Most importantly, renewal along these lines would facilitate meaningful public hospital reform. Each public hospital could be corporatized under the control over an independent board of directors, which would have full administrative and budgetary authority, and be responsible for determining the prices of its services in competition with other public and private hospitals. Business axioms usually foreign to state monopolies would hereby be introduced into the public system.
The priority in health policy is to not only worry about how much money is poured into the system but to also focus on how this money is misspent. A mature public debate about the issues, free of scare campaigns, is essential because there is no alternative to getting the design of the health system right.
We simply cannot afford to continue to spend vast sums, badly, on health services that don’t improve our health, while not getting enough of the care we actually need despite the large proportion of national income spent on health.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies in Sydney and the author of numerous health policy papers including How! Not How Much: Medicare Spending and Health Resource Allocation in Australia (2011).