What health care system?

This is an edited transcript of Ian McAuley’s address to the launch of A Health Policy for Australia: reclaiming universal health care in Sydney on Tuesday October 10, 2006.

We don’t have a health system in Australia — what we have is a mess of disparate elements, many of which function very well by themselves, but which don’t work together.

This is largely the result of successive governments’ attempts to fiddle at the margins. Labor governments have tried to bring in a Beveridge-style universal free system, but have always been constrained by the men of the counting houses, by treasury and finance officials and the obsession with the bottom line. They’ve tended to be half-hearted and contradictory; in the last election for example Labor championed bulk billing while happily supporting an increase in pharmaceutical co-payments. I could argue for either of those moves but only Lewis Carroll could argue for both at the same time.

I remember a time when we had a Liberal party in Australia, which had a belief in market forces. But it is now obsessed with supporting the private insurance industry, a high cost financial intermediary which stands between the consumer and the market. Private health insurance is not a market solution. Insurance of any type is a way of buying out of the discipline of market signals. I would have thought a Coalition government would be in favour of market signals but instead it is protecting the private insurers and pharmacists – the last thing it is doing is allowing a market to develop in health care. I can argue for a national socialised system or for a market system, but I cannot possibly argue for what the Coalition is trying to do because it seems to contradict any sensible set of policies.

Both Coalition and Labor governments attend to the emerging problems of the time, sometimes well but usually by doing whatever is in fashion, without going back to look at the fundamental system problems. That means an undue focus on hospitals, on the areas where there is the greatest noise and the greatest expenditure. The result is a complex mess. People within it know how their own bit works but to the consumer it is ghastly. Take the different safety nets for example:

  • Some cover families while others cover individuals;
  • We can have a free bulk bill or a free week in hospital but we have to pay $30 for our pharmaceuticals;
  • We receive tax rebates for private health insurance but not if we use private hospitals without insurance;
  • The treatment of physiotherapy has several different components in the tax and Medicare system.

It is absolutely bamboozling and as a result there is a huge misallocation of resources. Some people say ‘all you’ve got to do is sort out the Commonwealth-state issues’. Certainly that is important, but even within the Commonwealth for example, the pharmaceutical benefits scheme and Medicare don’t work together — they’re quite separate schemes. They’ve got their own safety nets, their own administrations, and their own criteria. So even within the Commonwealth there isn’t any coordination, let alone any sort of integration.

As a result of this there’s a huge amount of waste. But where there’s waste there is also opportunity, because it means that we can do a lot more with our current resources.

What we really want is a universal system. We don’t have that at the moment — we have a fragmented system. In hospital care we are rapidly developing a two-tier system; a private system funded by private insurers for the well-off, and a public system that is rapidly becoming a charity system. This fragmentation did not start with the Coalition, although they have embedded it a bit more. It really started back in the early nineties with Graham Richardson saying ‘we’ve got to do a few deals at the top end of town’. The redefinition started then, and it has become more entrenched, defining health care as charity rather than as something universal which we all share.

However, having stressed universalism, I don’t think we need to assume that a universal system is necessarily free for all. This is a question that needs to be put back to the public and the authors of Reclaiming Universal Health Care are not taking a strong line on this. The notion of a universal and free system came about in the post-war years when some therapies were terribly expensive, when incomes were generally low and when people had other priorities. There can be different levels of payment, and we can see the possibility for means tested co-payments. But we do suggest that rather than being dogmatic about how much the payments should be and whether they should be proportional or based on age or therapeutic benefit, that those co-payments should be subject to community discussion. How much should come out of our own pockets, how much protection there should be for the not so well-off, and how much should be covered by a universal, national insurer. There is scope for a combination both universal public funding with allocation based on therapeutic need as well as some market signals, whereas what we have now is a mess which has neither. In fact what we have, particularly when you look at private insurance, is an extraordinary combination of East German bureaucratic intervention and Chicago-style radical libertarian economics.

We’re arguing for a universal system shared by all, but within this system we might use a public hospital or a private hospital – we don’t see the issue of public versus private provision as particularly important. It’s largely a technical issue based on issues of market failure and whether the provider can be profitable. We do suggest however, that we don’t want to see corporatised providers. There’s a huge difference for example between a church hospital or a privately owned community health centre, and a large corporation like Mayne Nicholas or even larger multinational corporations becoming involved in for-profit health care. Whether the delivery of health care is public or private can largely be sorted out on the technocratic and pragmatic basis of where the market works best and where government works best. Where we take a strong line is on funding; funding either needs to come from people’s own pockets, which I’d call the idealised Liberal party side, or from a single national insurer, which I’d say is the Labor party preference, and of course some balance of that, because not even the most libertarian government would say that we should pay for all of our health care from our own pockets.

We need to de-link the private sector from the private insurance industry. One of the great myths which the private health insurance industry has been very good at perpetrating, and which the government has played along with, is that if we don’t have private insurance we won’t have a private sector. That is absolute rubbish. A single national insurer can fund people to use private hospitals and private resources. There is no need for this massive financial intermediary. It’s a cancer that is eating away at our health care provision, pushing up our health care costs and making them unaffordable. And an unaffordable system is inevitably an inequitable system.

Can we do it? Can we bring about fundamental change? Can we focus on primary care, redirect our funding through a single insurer, and wring our programs together to be more consumer friendly, based on demographics or consumer’s needs? It is all possible, because one of the things that Australia is really good at is fundamental policy change. It’s fascinating to look at the tremendous problems the US has encountered in trying to make even minor changes to its health care social security system. We on the other hand have an excellent history of fundamental change. Think back to the Hawke-Keating government — which brought about fundamental change in tariff protection and deregulated the finance sector, which one would never have expected from a Labor government. The Coalition government which succeeded it was also reform-minded in its early days. It fundamentally changed what was a ramshackle tax system. Strangely enough the change often comes from the party which we think is least likely to carry it out. I’m not trying to sell the virtues of those three major changes, you may or may not agree with them, but I think you have to agree that we have been very good at fundamental structural change.

I teach public policy and I often say to students ‘it’s a great idea and it would serve equity but it wouldn’t really serve economic efficiency’, or vice versa. The nice thing about health care is that we can bring about fundamental reform which serves both economic and equity objectives at the same time, because there is so much waste, so much misallocation, and above all, so much good will and energy from people involved in health care. We have nothing to lose.

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