How Much Will A Healthy Nation Cost?

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What with getting the states onside and finding funds for new policy proposals, Kevin Rudd’s healthcare reforms are getting more costly by the day, writes Ben Eltham
First published on New Matlida on 14 April 2010

For the past month, Australian politics has been dominated by the issue of healthcare reform.

For the Government, it’s a key plank in Labor’s re-election strategy. Australia’s premiers and chief minsters have been asked to sign up to a new health funding system, in which the federal government will move to take over more of the funding responsibility for primary health and public hospitals from the states. Funding will flow to new local health and hospital boards, which will bear responsibility for allocating resources (rather than the supposedly inefficient state health departments). New money from Canberra will help sweeten the deal.

But in return, the states will lose control of one-third of their GST revenue, which will instead be directed into health and hospitals funding. In the long term, the states will probably be better off, as healthcare costs threaten to overwhelm state budgets within a generation. In the short term, however, state premiers and their treasurers will lose much of their freedom to allocate their own budgets.

The process of healthcare reform says a lot about the way policy has been approached by this government. Under former state government bureaucrat Kevin Rudd, most policies have started with an inquiry, then moved to a policy proposal … and then stalled for a lack of political willpower.

Health has been no different. The process started with a large inquiry, the National Health and Hospitals Reform Commission (NHHRC), now often referred to as the Bennett Report. The NHHRC spent more than a year taking submissions and delivered a substantial and detailed blueprint for reform — albeit one that ignored many glaring issues of health policy, like the expensive but politically sacrosanct private health insurance rebate.

Then, like so many other policy reforms under Rudd, the Government adopted a watered-down version as its actual reform plan (pdf). Rudd and Health Minister Nicola Roxon’s plan, called the National Health and Hospitals Network (NHHN), ignored many of the recommendations of the Bennett Report (Bennett’s number one priority was Indigenous health) and instead concentrated on the structural issues underlying health funding. The most pressing of these is, of course, the imbalance between state and federal funding needs and abilities.

Rudd and Roxon therefore settled on a plan for a Canberra takeover of much of the funding for healthcare. As I argued in March, there’s no doubt that Australia needs significant health reform. But the NHHN plan misses many opportunities for reform: private health insurance and mental health were both largely ignored, while many other aspects of the plan are surprisingly timid. As health economist Ian McAuley wrote in newmatilda.com at the time, “for many years the Commonwealth has operated the Medical Benefits Scheme (Medicare) and the Pharmaceutical Benefits Scheme as separate programs, with different co-payments and different safety nets; should not the Commonwealth start by integrating its own programs?”

Unfortunately, most Australian media commentators are simply not qualified to report on the finer details of health policy with any expertise — which has meant that decent analysis of the policy aspects of the Government’s proposal have taken a back seat to coverage of the political jockeying between Canberra and the states. This is to be expected, but it has had the unintended consequence of allowing vocal state premiers like John Brumby to seize much of the media spotlight. It’s also why the complex and diverse area of healthcare is so often reduced to one-dimensional debates about numbers of hospital beds.

For Kevin Rudd, healthcare reform has become a high-stakes gamble. After comprehensively failing to sell his emissions trading scheme to either the public or to the Senate, Rudd has now staked his policy credentials and much of his re-election prospects on the more popular policy of hospitals funding. Mind you, emissions trading was popular once, too.

With positive polls in the wake of his good showing against Tony Abbott in the health debate, Rudd looked to have built momentum. But taking on the state premiers in Australia’s federal system, while sometimes popular, is never easy.

Consequently, in order to get the state premiers to agree to his reforms, Rudd has had to resort to some good old-fashioned bribes. In the last six weeks alone, the Federal Government has committed some $3 billion of new health spending in order to try to get the reforms over the line. There’s been something for nearly everyone in the health system: money for GP training, for elective surgery, for emergency departments and for aged care. None of this new money has been “costed”, which means it will come straight out of the Commonwealth’s consolidated revenue. Rudd is probably counting on the strengthening economy delivering him a windfall in extra taxes to pay for the bribes.

For their part, savvy state premiers like Brumby and Colin Barnett know they have a strong hand, and are using it to wring every last cent out of Canberra. Ultimately, the state premiers have little to lose — and billions to gain — for playing hard to get on these reforms.

Rudd has repeatedly threatened to hold a referendum on the issue if the states refuse to accept his proposal, but the premiers know that holding a referendum in Australia is a risky tactic. Historically, Australian voters have shown themselves to be cautious conservatives when it comes to approving changes to the constitution, particularly when one party or a number of state governments campaign for a “no” vote. Rudd must realise that even holding a referendum in the first place entails a large investment of precious political capital — and few have so carefully hoarded their political capital like this Prime Minister.

The other problem Rudd faces is that the longer the debate continues, the more likely it is that critics will emerge to pick holes in the detail. Criticism has started to snowball this week, first with Woolworths’ Roger Corbett attacking the new spend on aged care, and then today with Australian of the Year Patrick McGorry and one of the original architects of Medicare, John Deeble.

Deeble launched a savage attack on the lack of policy detail in Rudd’s reform plan, advising the premiers not to sign the deal. He told Radio National’s Sabra Lane that many of the Government’s commitments were not explained: “The Commonwealth was going to take over all primary care and pay 100 per cent for it … that’s the primary care provided by the states and not the hospital part. But nobody knows what that means. The Commonwealth doesn’t know what it means either.” Deeble also made the obvious point that the premiers have the whip hand if it comes to a referendum.

It’s a tricky thing, this healthcare reform. In the end, I think Rudd will get his agreement. But he is going to have to up the ante on his bribes to the states. It’s no wonder the costs of healthcare are spiralling.

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