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Who reaps the benefits? Rethinking the Medicare Safety Net

The Medicare Safety Net is riddled with costly flaws, making the system prone to misuse and manipulation. AAP

Medicare is one of the cornerstones of the Australian health care system, but there are serious questions about some aspects of the program. Over time, government reforms have created some perverse incentives that have led to greater inefficiency and inequity.

One feature of Australia’s Medicare program is that doctors can determine their own fees and patients can only claim a predefined Medicare benefit. For out-of-hospital services (such as GP and specialist attendances), patients have historically had to pay the gap between the doctor’s fee and the Medicare benefit. The bigger the gap, the bigger the out-of-pocket cost to the patient.

There are substantial variations in the out-of-pocket costs faced by patients. For example, the average out-of-pocket cost for a GP consultation in 2010 was $4.82, whereas the average for a specialist attendance was $32.17. In terms of out-of-pocket costs, access to GPs has remained relatively constant over time, whereas access to specialist services has declined. This helps explain previous research in Health Policy journal, which shows poorer sections of the community are greater users of GP services, but wealthier sections access specialists more often.

Average fees, Medicare benefits and out-of-pocket costs (constant $) Adapted from [DOHA 2011](

In 2004, the Howard government introduced the Extended Medicare Safety Net and fundamentally changed the design of the Medicare program. For the million or so patients who qualify every year, the Safety Net pays 80% of all out-of-pocket costs for out-of-hospital Medicare-related services. Patients qualify after they reach a certain threshold in out-of-pocket costs in a given year. The key change is that with the introduction of the extended Medicare Safety Net, the amount of Medicare benefit is tied to the doctor’s fee. Our 2009 review showed that wealthier sections of the community were the greatest beneficiary of the Safety Net. The 20% of Australians living in the wealthiest areas received 55% of Safety Net benefits, whereas those 20% living in poorest areas received less than 4% of benefits.

Furthermore, it showed that the Safety Net reduced the competitive pressures that some doctors face and has increased their ability to charge higher fees, particularly in specialty areas such as private obstetrics and assisted-reproductive technology services. In fact, in our 2009 report on the Extended Medicare Safety Net for the Department of Health and Ageing, we estimated that for every dollar the government spends on the Safety Net, around 43 cents went towards increased doctor fees and 57 cents went towards reducing patients’ out-of-pocket costs.

In the 2010 Budget, the government introduced Safety Net caps for a small number of Medicare services where there was evidence of high Safety Net expenditure and doctor fee increases. The caps placed limits on the amount a patient can claim under the Safety Net. In our 2011 review of capping arrangements for the Department of Health and Ageing, we found that government expenditure on the Safety Net fell by 42% in 2010. This is a dramatic decline in spending, considering that government expenditure had been in excess of 20% per annum in three years prior to capping. The review also found that while some provider fees fell, patients faced higher out-of-pocket costs for most services.

We also found evidence consistent with providers shifting billing practices in order to avoid caps. The findings in the 2011 review, however, should be regarded as preliminary. Many aspects of the capping policy may still be making their way through the system, which we could not observe in the short observation period of the data.

In the context of the Australian healthcare system, the Safety Net is an inefficient mechanism by which to fund healthcare services. It has created price signals to both providers and patients that create disincentives for the efficient and equitable delivery of health care.

A good place to begin reform would be for government to become more transparent about how it determines benefits for Medicare items, taking into account not just the government’s own spending but also the contribution that patients make through out-of-pocket costs.

At the same time, doctors need to provide patients with full information about their fees so that patients can make informed choices.

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