Paying for health care

A confusion of arrangements

One manifestation of our fragmented health care arrangements is that there is no consistent way we pay for health services. Some services are provided at no charge, being paid for by our taxes, while some other services incur a full or part user contribution — a ‘co-payment'.  In some cases those co-payments are capped, while in others the consumer is left bearing an open-ended contribution. Criteria for eligibility are inconsistent between programs. Some safety-net support is given on an individual basis, some on a family basis.

The complexity of these arrangements is overwhelming. The examples below illustrate just some of this complexity, inconsistency and, in cases, they carry an incentive to seek high cost subsidised or free care when lower cost care may be more appropriate.

Care in a public hospital is free. In a private hospital, if we are reliant on our own resources, we have to pay the full cost of the service, apart from what Medicare picks up, being the schedule fee of the medical service (usually only around half the actual charge). If we have taken advantage of the government generous subsidies for private insurance — subsidies which inequitably increase with our level of income — then some of our bill will be covered but we will still be left paying an open-ended amount. (It's strange to call such a product ‘insurance'.)  If we have bought out of the discipline of market forces entirely with a ‘no gaps' cover, we will have a free hospital stay.

When we buy prescription pharmaceuticals we pay a fixed $29.50 co-payment, until we have accumulated $933.90 in co-payments (about 32 prescriptions), after which we pay only $4.70 a prescription. If we hold a concession card we pay only $4.70 for our first 53 prescriptions, after which the remainder are free. If the pharmaceutical we need is not listed in the Pharmaceutical Benefits Scheme (PBS), however, we pay the full price as charged by the pharmacist — in a market with strong protection from the discipline of price competition.

Thanks to Scratch!

A visit to a bulk-billing medical practitioner is free, if we can find one. Those whose need is confined to a medical certificate to take a Monday ‘sickie' or to miss an exam always know where to find a complying GP. (Employers and university lecturers place more trust in GPs than they place in their employees and students.) Those who seek the services of a GP who will give a more thorough consultation usually pay substantially above the schedule fee, possibly as high as $30 for a GP and much more for a specialist, until they reach a threshold of $1000, after which the co-payment is subsidised by 80 percent.

If we use a physiotherapist, however, we will receive no subsidy, unless we have a recognized chronic condition, in which case we can be subsidised for up to five services a year. (There are some other similarly limited subsidies for other health professionals.) If, following a sports injury for example, we use physiotherapy services, we pay the full cost, but if we enter the more expensive medical network we will be heavily subsidised.

After we have accumulated $1500 in out-of-pocket health care costs, we are eligible for a 20 percent tax rebate on any extra outlays, but with certain conditions. Dental expenses are covered, but physiotherapy and related services are covered only if they are at the direction of a medical practitioner.

How it got to be this way

We may be forgiven for believing that governments revel in making life complex. Many people miss out on subsidies for which they are eligible because they do not know about them or because they do not collect receipts and keep records. There are rewards for those who have the time to spend visiting government website, keeping records and filling out forms.

This confusion stems mainly from the fragmentation of health care programs. There is a lack of integration, not only between Commonwealth and State programs, but also between programs administered by the one tier of government. The Commonwealth's PBS and Medicare (payments for medical practitioners) are completely separate programs, with different historical legacies. The PBS arose in the early post-war years, when life-saving antibiotics were prohibitively expensive, and when average annual wages (usually of a sole male breadwinner) were only $20,000 in today's terms.  Medicare is a successor to Medibank, originally introduced by the Whitlam Government to provide universal medical insurance, overcoming the inequities and inefficiencies of tax-deductible private health insurance.

Payments by individuals for health care have crept up over the last twenty years, from around 15 percent to more than 20 percent of total expenditure. This, in itself, should not be seen as problematic. Real incomes and living standards have risen strongly over that same period. It is reasonable to expect Australians to be able to absorb more of their own health care costs before having to rely on safety nets.

The policy problem, however, is that these payments have grown haphazardly. Co-payments have been introduced or modified program-by-program. (For example, until 1960, there were no co-payments in the PBS.) They have generally been designed not to result in more efficient allocation of scarce health care resources or to give effect to policy principles, but, rather, to comply with arbitrarily-determined constraints on government expenditure in Budget Cabinet deliberations — a process which more resemblance to bargaining bouts in a tourist bazaar than to deliberations about public policy.

An added distortion is partisan attachment to certain programs. The Coalition's sacred cow is private health insurance, a demonstrably high-cost, inequitable and inefficient means of funding health care. The Coalition departs from its philosophy of self-reliance to encourage people to hand responsibility over to health insurance funds. Labor's sacred cow is bulk-billing, but it has no difficulty with allowing PBS co-payments to rise. In view of the fact that most medical episodes involve a medical service and a prescription pharmaceutical, this attachment to bulk-billing is hard to understand.

A way out

This mess, with its distortions and inequities, will remain until governments undertake serious re-design of our health care programs, articulating and giving effect to basic policy principles which should underpin all aspects of health care delivery. Ideally this should result in an integrated health system, with one coherent regime of tax-funded support and of co-payments.

The first step towards this outcome would be for the Commonwealth to engage with the community to find what principles they want embodied in health care funding. Do we want universal, free access — with health care seen as a ‘solidarity good'?  Do we want to take more individual responsibility, but with a universal safety net?  How much market competition in health care do we want?  To what extent do we want health care to achieve redistributional goals?

Will the Government or the Opposition be willing to suggest such a process in next year's election campaign?  Or will we see, once more, electorally targeted tinkering with our health care programs, with the inevitable outcome of an even more fragmented and complex set of health care arrangements?

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