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Health funding under the microscope – but what should we pay for?

In the sixth part of our series Health Rationing, Mark Mackay examines the latest think tank blueprint to rein in Australia’s rising health costs. But he warns that before funding models are adjusted…

The health budget isn’t limitless: decisions have to be made about to how to allocate funding between competing choices. AAP/Dave Hunt

In the sixth part of our series Health Rationing, Mark Mackay examines the latest think tank blueprint to rein in Australia’s rising health costs. But he warns that before funding models are adjusted, governments must make some tough decisions about the type of health care they’re willing to pay for.


In recent weeks, the Committee for Economic Development Australia and the Grattan Institute released reports on Australia’s rising health costs and strategies to rein them in. Now the Centre for Independent Studies has released its own blueprint for health financing reform: Saving Medicare but not as we know it.

The report is part of the centre’s TARGET30 campaign, aimed at reducing the size of the government, while improving public services and reducing fiscal burdens on future generations.

To transform Australia’s financially unsustainable health system, the centre recommends cutting Medicare (Australia’s free and universal taxpayer-funded health care scheme) “down to size” by boosting the efficiency of public health services, better targeting public health spending and expanding the role played by private health-care financing.

Essentially, this means the individual becomes more responsible for meeting their own health costs and that hospitals are made more efficient.

The centre also recommends scrapping certain programs or aspects of Medicare in order to reduce wasteful expenditure. These include GP management plans, where doctors are paid to coordinate the care of patients with a chronic illness and the Better Access program, which pays for up to ten consultations with a psychologist.

Health savings accounts

One of the key recommendations in the report is the introduction of a dual funding system. Rather than relying on Medicare for seemingly free or low-cost services, people would use individual “health saving accounts” to pay for their own low-cost health care. For high-cost episodes of care, such as operations, government-issued vouchers would be available.

Health savings accounts are like superannuation accounts, but are used to pay for health-care services from adulthood to death. The system is currently used in the Netherlands, where half of the funds come from employers, 45% come from the insured person and 5% by the government.

But while the centre points to the experience of the Dutch as being a way forward, the system has only been in operation since 2006. It is therefore too early to determine how well costs are being contained and how well the system compares with other countries.

This is not to say that health savings accounts aren’t worthy of consideration. Rather, there’s a good deal more to discuss before the proposal can be accepted.

What should we pay for?

Australia, like many other OECD countries, is experiencing increasing cost pressures from its health-care delivery system. Money is not limitless and decisions have to be made about to how to allocate funding between competing choices that governments wish to fund.

The centre is right in saying it’s now time to act, otherwise we will be merely repeating mistakes of the past. But this involves first deciding what might be purchased and then deciding how those purchases should be funded.

The centre’s report has jumped to the funding decision first without considering whether we have decided to purchase the right thing. Altering the funding mechanism to purchase the wrong mix of health-care “products” is not a good decision. We want to purchase good health outcomes and not just health service activity.

Elderly people with kidney disease are increasingly treated with dialysis – but will it improve their quality of life? Image from shutterstock.com

Last week on The Conversation, intensive care specialist Peter Saul argued it was time to address the decisions we make about care options, particularly towards the end of life.

South Australian Minister for Health and Ageing made a similar call when addressing two public forums in Adelaide earlier this month: “It’s time for a mature debate about what the public wants and what they are willing to pay for in healthcare and other areas,” he said.

The minister identified that the expansion of services in recent years, such as the regular provision of dialysis for the elderly, has been costly and has occurred without regard to the quality of life impact. Notably, the single greatest reason for hospital admission during 2004-05 was for “care involving dialysis”, an indicator for chronic kidney disease, which accounted for nearly 12% of admissions.

Like Saul, the minister has suggested that, “the value of health spending needed to be re-cast in terms of the quality of survival rather than survival alone”.

While experts are highlighting the need to consider conversations around end-of-life options, the real challenge lies ahead for community leaders. Are they prepared to provide the leadership to see such changes come to fruition and not buckle under the weight of political or media pressure about hospital beds, waiting times and staffing numbers?

There’s no such thing as a free lunch. We will all pay for today’s bad decisions in the future – and it just so happens that the medical profession can now keep us alive longer to see the outcome of these decisions. It’s time to determine what health outcomes we need and want, and how we might then deliver and fund these in a sustainable way.

But what we’re lacking is someone to stand up and lead the engagement process. Who is prepared to deliver and implement the necessary changes to our health system? And will they be able to muster the politicians, media and the public along for the journey?

Given the different levels of government that have responsibility for delivering health-care services in Australia, achieving change will require champions to take up the challenges in each state and territory as well.

Economists alone cannot, nor should they be expected to, provide the solution to Australia’s health system’s problems. The centre’s TARGET30 report does, however, provide a talking point – and that’s where engagement begins.

This is the sixth part of our series Health Rationing. Stay tuned for more articles in the lead up to the May budget or click on the links below:

Part one: Tough choices: how to rein in Australia’s rising health bill
Part two: Explainer: what is health rationing?
Part three: A conversation that promises savings worth dying for
Part four: Phase out GP consultation fees for a better Medicare
Part five: Focus on prevention to control the growing health budget