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Clear thinking needed on election health priorities

Key health policy issues that need to be addressed include co-payments, private health insurance and resource allocation. AAP/Alan Porritt

There was a time when health policy involved intense ideological conflict along partisan lines. In the 1940s, the Chifley government fought all the way to a constitutional referendum to introduce subsidies for pharmaceuticals. The Whitlam government got Medibank (the forerunner of Medicare) through Parliament only by way of the 1974 double dissolution.

But even though “ensuring the quality of Australia’s health care system” comes in just behind “management of the economy” in public ranking of election issues, health policy is unlikely be a major area of conflict in the 2013 poll.

Interest groups representing medical practitioners, health insurers, people with chronic illnesses and others will undoubtedly make their bids, and in response political parties will tweak their offerings, but there is unlikely to be a passionate debate.

It’s not that we have developed a near-perfect system. Rather, the interest groups concerned now realise there is little more to be achieved unless it’s at the expense of other groups’ interests. And those interest groups are likely to mount a strong and costly fight – a situation economists call a “Pareto equilibrium” and which we lesser mortals call an uneasy truce.

The deals worked out in past years have left imprints on our health care arrangements. Those imprints reflect not only the grand ideological struggles about “socialised medicine”, but also the fiscal conditions, ideas about Commonwealth-state responsibilities and general policy fashions of various times. The non-means-tested universalism of Medicare medical payments, for example, is a legacy of the Whitlam years; while later programs reflect a more targeted approach based on means.

Our health care arrangements are like an old country homestead which has been extended many times, sometimes in times of plenty, sometimes when conditions were tough, in designs which were contemporary at the time – all of which doesn’t really come together.

Indeed, it’s a misnomer to call our health care arrangements a “system”, for in spite of various good intentions, there is little integration between various programs. Nowhere is this more evident than in the mess of co-payments – out-of-pocket costs for health care.


On average co-payments are not high: 81% of funding for health care comes through governments or private insurers. But they’re inconsistent and conflict with any reasonable ideas of economic efficiency or equity. A neurosurgery operation in a public hospital is free, while someone with mental illness who needs regular consultations with a psychologist can incur thousands of dollars of out-of-pocket expenses.

Co-payments for drugs on the Pharmaceutical Benefits Scheme are fixed (at $36.10), while the government payment for medical services is fixed, leaving the patient liable for the open-ended balance. Such inconsistencies are bound to result in resource misallocation and inequities.

Private health insurance is an inefficient way to fund health care. Image from shutterstock

Private health insurance

Arrangements involving private insurance are even more bizarre. There are strong financial incentives for people to hold private insurance: most Australians with private insurance receive a rebate of up to 40% of the cost of premiums; while those with high incomes are encouraged via the Medicare Levy Surcharge, which imposes a penalty of up to 1.5% of income on those who don’t hold insurance.

Ostensibly, these subsidies for private insurance are meant to take pressure off public hospitals, but in reality they simply shuffle the queue, giving those with private insurance priority access to scarce resources – a form of subsidised queue-jumping.

By any reasonable criteria, private health insurance is an inefficient way to fund health care. It carries a high administrative cost (of $15.4 billion in insurers’ premium income in 2010-11, only $13.1 billion was paid in benefits). And it carries the same incentive for over-use as Medicare (known in the industry by the quaint name “moral hazard”), but without the capacity to control costs which is enjoyed by a strong single insurer.

Its supporters claim that those who hold private health insurance are engaged in the virtuous behaviour of “self-reliance”, but there is nothing more “self reliant” about paying BUPA or HCF to handle our hospital bills than in having the government do the same. Insurance of any kind, public or private, is a means of sharing risk and avoiding individual responsibility for contingencies.

Ironically, those who exercise true self-reliance, paying for private hospitalisation from their own pockets, are excluded from the rebates and tax incentives available to those who use private insurance.

Resource allocation

We have a mess devoid of any underlying set of principles how scarce health resources are allocated. We find a little socialism here, a little free enterprise there, and quite a lot of appeasement of vested interests. Users of health services, apart from those who have well-organised lobbies (usually based on chronic conditions), hardly have a voice at the table.

It would be arrogant for any academic or policy observer to suggest what principles should guide health policy, because basic questions have never been put to the people:

  • To what extent do we want to share our health care costs with one another?
  • Do we want a “free” tax-funded system for reasons of social inclusion and solidarity?
  • Or should we come to see health care more as a normal good, paid for from our own pockets, without public or private insurance, and with safety nets for the poor and for those with high needs? (After all most Australians are much wealthier in 2013 than they were in 1953.)
  • Should those who make poor lifestyle choices pay more for their care?
  • Do we all want to use the same hospitals or do we want a hospital system segregated along income divisions?

These questions should be in the political arena. They concern the values in our health care arrangements. They involve fundamental issues of libertarianism versus paternalism, and of individual versus collective interests.

Both the government and the opposition claim they want to focus on policy in the coming months, but for health care it looks like we will muddle along without addressing these hard questions.

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