Far reaching changes are under way to Australia's health system. These changes are gradual, multi-faceted and uneven. They fit with changes taking place in all social services and public sector activities.

The view of the World Bank and OECD governments (including the Australian government) is to dramatically shrink the role of government in producing and distributing goods and services.

Public provision of services is to become the exception rather than the rule. State intervention will only be justified where markets fail eg defence, primary education, rural roads, and some social insurance.

Government will no longer provide generous guarantees of adequate living standards for all. Rather the intention is to foster greater personal responsibility for income and welfare.

According to the World Bank - "Social protection will only be targeted at those vulnerable groups who need it most".

The basic principle is that anything that can be done by the private sector will be implemented across the board -- in piecemeal fashion without any formal declaration as to what the outcome will be.

There are many common threads in what is happening to the unemployment services, social services, postal and telecommunications, banking, electricity or water.

The terminology has become very common place - "corporatisation, cost accounting, internal markets, selling off of public assets, competitive tendering, contracting out management or provision of services, user pays, means testing, competition policy, employment on individual contracts and massive downsizing."

What does the future hold for health care?

Perhaps we learn most by looking at what has already happened to education.

In the case of primary and secondary education the distinction between public and private sector is becoming increasingly blurred. Per capita funding of both systems is converging i.e (for public schools it is falling and for private it is rising).

The whole education system is being decentralised eg. responsibility for syllabuses is being devolved to the local level. There is introduction of local budgeting in the public system with school principals and their boards having the power to hire and fire, determine wages and conditions of staff and make curriculum decisions - bringing them closer to the private model.

The future will not be of public or private schools - rather it will be of rich or poor schools.

Universities are gradually becoming less reliant on public funding and becoming more autonomous and some are registered companies. The public/ private nature is becoming blurred with the trend towards private.

Water, electricity, gas, postal and telecommunications sectors are all being corporatised and opened up to the private sector. Bit by bit the state is divesting itself of social responsibilities and transferring them to the private sector and leaving it to the markets.

The OECD preferred Health Model - Managed Competition.

Richard Scotton (famous as the other half of Scotton and Deeble the originators of Medibank, later Medicare) explains the "Managed Competition" model in his chapter in the recent book "Economics and Australian Health Policy". The information is probably not new, however, and maybe similar to theories for health care provision being advanced within the OECD - but adapted for Australian conditions.

Scotton starts with euphemisms - to establish structures in which we can increase "economic efficiency".

Scotton describes Managed Competition as a natural development and extension of the benefits of Medicare. "The 1st stage was the establishment of a national health insurance program (Medicare) to secure universal access and equitable costs with varying degrees of direct government involvement in funding and service delivery. The 2nd stage in the 70's and 80's was to control budgetary ceilings and "unsustainable rises in health expenditure".

Scotton admits that we have been very effective in controlling the rate of expenditure growth and in some cases actually reducing the proportion of GDP allocated to health services. However, he says, we now need to push on to the 3rd stage - because of "continuing rises in real costs due to need for state-of-the-art health care resulting from advances in the medical knowledge and technology".

Scotton says that the impact of cost increases is sharpened by declining rates of sustainable economic growth in the developed world. He says that global cuts in governments health budgets reach the stage of threatening access, equity and even quality of care.

(He avoids the full picture ie. cuts to health budgets are due to the globalisation push worldwide to reduce the size of government and open all sectors to the commerce of "the free market".)

Scotton seems a reluctant convert to OECD thinking, however. He cannot avoid the admission that Medicare, as a publicly financed health program, has been very successful in securing access and equity and in controlling total health expenditures.

"However (and despite the litany of problems cited in this chapter) Australians have much to be pleased about in terms of the quality of care generally provided, the accessibility of services to people of all levels of income, health outcomes and the overall cost of health services to the community".

He points to deficiencies in the health system e.g. long hospital waiting lists and the high cost of private health insurance, as well as cost-shifting, as indicating a need for change.

Scotton says that Managed Competition is the answer because "it involves the use of market tools to guide resource allocation and it also includes a regulatory framework to eliminate sources of market failure found in unregulated markets for health services" and points us in the direction of the US health system - "it is in the USA that the concept of Managed Competition originated and has been most vigorously developed".

Scotton claims that Managed Competition, unlike Medicare, is designed to affect the way in which services are paid for. "It is deliberately designed to bring about significant behavioural changes on the part of funders, providers and consumers by means of financial incentives to bear on their decision making".

He claims that the universality of coverage and equity of an existing program such as Medicare will not be affected by the reforms - but this claim seems more than a little hollow if not naive.

Perhaps in the beginning it may be so, but it wouldn't be long before government would reduce the amount of Medicare funding per person going to the budget holder to be replaced by user pays.

In the Scotton/ OECD scenario there would be enlarged opportunities for existing health insurers to function as competitive budget holders. He says that consumers would have "real choice" including the right to vote with their feet and change service provider if they are not happy.

(Tell that to someone with chronic illness such as HIV in the USA’s version of managed competition. In the US the chronically ill get poor care and are encouraged to leave the budget holder when they complain because they cost too much! As are the doctors that manage chronic illness because "they attract the wrong customer". When the chronically ill cannot find a private provider willing to take them they are left at the mercy of an underfunded public system).

And there is the question of complexity. Under the Scotton model there will be no more "hassle free Medicare". Instead we will be given "freedom of choice" among the hundreds of different budget holders and thousands of different types of policy on offer.

Scotton candidly admits that he "may be flying in the face of conventional wisdom because a single-payer system has substantial advantages in terms of eliminating adverse selection, increasing bargaining power of the service providers, gathering information for service planing and management purposes and minimising administrative costs."

His weak reply is - "it can be argued that the advantages of a single payer system have been greater in the past than they are likely to be in the future and that the proposed Australian model incorporates features specifically designed to minimise them."

What about the preferential recruitment of low-risk patients to boost the budget holder's bottom line - how do we stop budget holders from cream-skimming low risk patients i.e avoiding the sick? As Scotton puts it - "Incentives to compete on grounds of efficiency will be effective only if the way is barred to easier paths to profitability, involving preferential recruitment of low risk customers".

Scotton's incredible reply - "one could be optimistic about the possibility of devising a formula for risk adjusted capitation payments which would reduce the scope for cream skimming to workable proportions" and "Pure capitation adjusters would have to posses much higher explanatory power than any yet devised to inhibit cream-skimming by insurers and budget holders."

Scotton goes on to admit that Managed Care would be an inevitable tool for cost control in many packages offered by budget holders. However "the consumer will have the right of freedom-of-choice of budget holder - subject to the proviso that the additional cost of doing so would be met by the user".

In other words, if the patient is not happy with their budget holder they can change provider - as long as they can afford the cost and are able to find another budget holder that would accept them (or treat them any better??).

So is it happening ? ? - privatisation by stealth and Managed Competition as the future of our health system. Certainly all the pieces seem to be falling into place.

Consider the following terms that are being introduced: Case mix, purchaser-provider split, internal markets, repeated attempts to introduce Copayments, contracting out of cleaning services, laundry etc, gradual integration of public and private including increasing funding of the private system by government, Collocation of public and private facilities, the Medicare levy being designed as only part payment (with the rest contributed from general taxation revenue but ? eventually to be contributed by the individual), private health fund contracts with doctors and hospitals, bed and ward and hospital closures, private management of public hospital such as Modbury in South Australia, Port Macquarie in NSW as a private hospital providing for public patients, Medicare offices now being used to process claims for the private health funds, changes to community rating, means testing of public hospitals.

Scotton concludes his argument for Managed Competition posing the following questions:

Does the Australian Health System have problems requiring remedial action?

If so are they the kind requiring systemic as distinct from incremental reform?

If the former, does Managed Competition offer the best solution?

Finally, even if it does so in principle, are the barriers to implementation insurmountable?

Let's be fair dinkum about funding the Public Health System

1. If the federal government can throw away 1.5 billion dollars annually on the 30% PHI rebate why can't they find 1.5 billion annually from the current large federal budget surplus (? presently around 6 billion dollars) to take funding pressures off our public hospitals.

2. Why is the higher Medicare levy - the penalty put on higher income earners who do not take out PHI - being put back into consolidated revenue rather than to the health system?

3. Why hasn't the federal government come up with the extra 150 million dollars that they promised the States in the last round of Medicare funding agreements?

4. Why isn't the federal government forcing Victoria and South Australia to honour the Medicare agreements? How could the Kennett government take a 26% increase in health funding and spend 27% less on public health funding?

The State Liberal premiers screaming loudest for the dismantling of Medicare - due to its "unsustainability", have in fact cut their health budgets the most. Commonwealth outlays in hospital services increased by a real 24% in the 6 years to 1997/1998. During the same time Victoria dropped its recurrent spending on hospitals by 27.5% and South Australia dropped its funding by 23% and WA remains static (Mike Stekete, The Australian).

Stop further public subsidy of the Private Health Insurance Industry
If the public system is "unsustainable", it is because of the heavy federal subsidies going to the private health insurance industry. It follows that we should immediately stop any further subsidies to the private health funds. Let the private health insurance industry sink or swim on their own "market forces".

And we should be wary of further penalising high income earners via further increases in their Medicare levy or excluding them from the public system - means testing. Medicare must remain a universal system. Not just because 60% of the funding of Medicare comes from the 40% top income earners but also because it is the vocal middle classes who help to maintain high standards within the system.

Conclusion
Is privatisation of our health system unstoppable? Maybe, maybe not. But our best chance of keeping a decent health system is to be united in a broad alliance of health professionals, health care workers, unions and community organisations as well as engaging the middle class in the struggle to defend Medicare.

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