Ideas@TheCentre
How to save the health system
This week, the CIS released the third TARGET30 report on Australia’s unsustainable health system.
The report, Saving Medicare But NOT As We Currently Know It, argues that creating a health savings-based system would go a long way in solving the affordability problems facing Medicare.
Instead of the federal government paying for medical services and medications through the MBS and PBS, these health dollars could be better used to fund contributions to personal Health Savings Accounts (HSAs), which people would use to pay for their own health care.
Because they would be spending their own money, consumers would become far more cost-conscious users of health care. Overuse of heavily subsidised health services would be reduced, and as HSA balances increased, health costs would be shifted off government.
The principle of allowing people to save up to pay for health care is not as radical as it might seem, given that a similar approach has either been proposed or implemented in other ageing-sensitive areas of government expenditure.
The definitive 2012 Productivity Commission report into the challenges facing the aged care sector recommended that capital and operating costs for nursing home providers be self-financed by requiring residents to pay an accommodation bond.
The commission recognised that the only feasible way of addressing the financial sustainability challenges facing the aged care sector was to release the equity accumulated in the family home. Bonds are financed by requiring residents of aged care facilities to sell or reverse-mortgage the family home, the principal asset most Australians use to save for over the course of their lives.
Thanks to the compulsory superannuation system (and tighter means testing), Australia does not face as large an unfunded public pension liability as comparable countries in the OECD.
Only modest growth in the cost of the old age pension of 1.2% of GDP is expected by mid-century due to the self-funding of retirement incomes having reduced government responsibility for the cost of caring for the elderly.
We need to make the same transition to a pre-funded health system if health care is to be affordable in the twenty-first century.
Dr Jeremy Sammut is a Research Fellow at The Centre for Independent Studies. His TARGET30 report, Saving Medicare But NOT As We Currently Know It, is available at cis.org.au/target30.
