Coalition should tread carefully in Medicare rejig

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By Leith van Onselen

The AFR is reporting today that Health Minister, Peter Dutton, is planning major changes to Medicare in order to reign-in costs, including introducing a co-payment on GP and emergency hospital services, as well as introducing “private sector efficiencies” into the public hospital system and greater private health insurance involvement in chronically ill care:

Mr Dutton says private sector efficiencies must be introduced in the public hospital system, the primary care system needs to be improved, and private health insurers should be involved in the care of chronically ill patients…

He has hinted strongly at the introduction of patient payments for GP and emergency department visits…

He reiterated his belief in a greater role for private health insurers in the primary care system, but that did not mean patients opting out of Medicare.

Dutton’s focus on Medicare is justified given the 124% rise in Medicare Benefits Scheme (MBS) outlays (from $8.1 billion to $18.6 billion) between 2002-03 and 2012-13, as well as the projected increase in health care spending as Australia’s population ages (see below charts).

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In its 2010 Intergenerational Report, Treasury projected that Commonwealth health expenditure would balloon from 4% of GDP to 7% of GDP by 2050 without policy change, just as the taxation base shrinks due to an ageing population.

Put simply, health costs will either need to be paired-back or taxes will need to rise significantly.

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In principle, introducing a small co-payment for visits to GPs and emergency for those that can afford it is a sensible move, in my opinion.

Not everyone should be allowed to visit a GP or emergency department without incurring a small out-of-pocket expense. Rather, “free” health care should be reserved for those on health care cards and low incomes.

Moreover, without some kind of out-of-pocket expense, GP services are likely to be overused, without due regard given to the overall cost to taxpayers and the Budget. Better price signals are, therefore, required in order to better ration services – as occurs with other government health services, such as existing payments to a pharmacist for prescriptions. Of course, there should always be safeguards for vulnerable citizens, such as those on health care cards or on very low incomes, but that doesn’t mean the majority should not pay something when they consume public health services.

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That said, the Government’s plan to shift GP costs onto private health insurers is questionable, and would likely lead to an escalation in private health insurance premiums. While such a reform may lower costs to the Budget, overall costs to the economy (and households) could actually rise.

Indeed, the US health system illustrates the perils of moving towards a privatised system. There, health care consumes 18% of GDP, versus 9% in Australia, despite 16% of US households not being covered by any form of health insurance and much worse overall health outcomes.

A recent survey by Bloomberg ranking countries based on three criteria: life expectancy; relative per capita cost of health care (percentage of GDP per capita); and the absolute per capita cost of health care, also showed Australia to have the 7th most efficient health care system in the world, ranking above other Anglosphere nations including the UK (14th), Canada (17th) and the United States (46th).

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While better price signals are required in order to better ration services, the Government should be very wary about making fundamental changes to the system, including shifting health provision to private operators.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.