New DOCTOR
No 72
Summer 1999/2000
 
Maintaining Medicare: rhetoric or reality?

The turbulence in Australian health policy throughout the 20th-century is unique. Although conflict and controversy are common in health policy processes which deal with powerful vested interests, no other industrialised country has experienced the abrupt changes in policy direction that characterise Australia. The main reason for chopping and changing between systems is that the major political parties have pursued opposing policies for decades. In the last five years, however, a significant change appears to have developed. At first glance, it seems that consensus has emerged about an appropriate health system for Australia. Policy differences between the parties have narrowed and there is evidence of a degree of bipartisanship. Closer inspection of recent policy moves, however, shows that there is still a significant gulf between the parties. Moreover, the latest initiatives cast doubt on the Commonwealth government's commitment to the preservation of Medicare.

The Howard government is the first Coalition government since World War Two to have retained the health system instituted by its Labor predecessors. In the early 1950s, the Menzies government acted to force the States to dismantle the free hospital system introduced by the Curtin and Chifley governments of the mid-1940s. Menzies' Minister for Health, Earle Page, succeeded in his objectives in all States except Queensland, where policy makers of the day thought it politically impossible to abolish a scheme so popular with citizens. The Fraser government, coming to office at the end of 1975 only months after Medibank had been put in place, found it relatively easy to incrementally dismantle the scheme in a series of policy changes over five years. By 1981, Medibank had been completely abolished and the system of publicly subsidised, private health insurance, introduced by Earle Page, had been reinstated.

The Howard government made an election promise to retain Medicare and, in the sense of not tampering with the system, the promise has been kept. The majority of Australian citizens who benefit from Medicare can be pleased with this outcome, because no previous national health system has survived the election of a Coalition government. However, there are more ways of killing a cat, as the old saying goes, than choking it with butter. And there are more ways of undermining Medicare than actively dismantling it. One way is to allow the public health system to run down, while ploughing taxpayer's money into the private sector. The focus of the Howard government's health policy is just this: the objective is to expand the size of the private sector using tax dollars, rather than to improve services in the public sector. This policy will gradually destroy Medicare as surely as any direct dismantling would do.

The first instance of using taxpayer's money to benefit the private sector was the subsidy of up to $450 a year introduced in June 1997 for low and middle income people holding private insurance. The rationale was to encourage people to go private. However, while the subsidy was in operation, private insurance continued to fall. The money was thus a windfall gain - a gift from other taxpayers - to people who were already privately insured. It failed to expand the private sector and did nothing to improve health services.

The second measure is a subsidy of 30 per cent for the cost of private insurance, announced as part of the GST proposals but in reality, quite unrelated to the rest of the package. It came into operation on January 1, 1999. All those who hold private health insurance, the wealthy as well as the not so wealthy, are subsidised by those who do not, by the enormous sum of $1.5 billion per year, or more than 3 per cent of the total health bill. Unlike the previous subsidy, this measure is a windfall gain for all people who hold private insurance, most of whom are high-income earners.

The third measure, announced towards the end of 1998, is a large increase, from $400 to $950, in the Medicare benefit for so called complicated births - but only for the complicated births of those who hold the private insurance. According to the Minister for Health, the measure is intended to reduce the "gap" between the Medicare benefit and the fee which doctors charge, thus increasing the attractiveness of private insurance.

The major beneficiaries of this policy are obstetricians, who, following historical precedent, have simply increased their fees, still leaving patients with large gaps to pay. Commonwealth governments have no control over doctor's fees - the States have constitutional power over prices - and medical associations have no control over the pricing practices of individual members.

Moreover, the additional benefit for obstetric services is a major concern from a women's health perspective. The fear is that the benefit will be a financial incentive for increased intervention in childbirth. Australia already has an inordinately high Caesarean section rate. At 19.4 per cent of births, it is second only to the United States. By comparison, the rate in the Netherlands is less than one third of that in Australia - at just 6 percent.

What is even more worrying is that the Caesarean section rate for privately insured women in Australia is already 46 percent higher than that for women without private insurance, at 24.3 and 16 per cent respectively. The new policy will increase the private rate even further and is in direct contradiction with guidelines set out by the World Health Organisation.

In the first nine months of the operation of the government's new 30 percent subsidy, private insurance membership increased by 214,000 people. The Minister for Health, Dr Michael Wooldridge, welcomed this outcome, saying that: "This is tremendous news for all Australians because it is a consistent, sure sign that we will be able to maintain a robust private health sector into the future" (Media Release, 18 November, 1999, p.1).

However, 214,000 is only really a handful of people, considering that 5.89 million people hold private insurance. In fact, it is a rise of less than one per cent of the insured population. And this small increase has cost taxpayers are a lot of money.

Average Australian hospital use is approximately one day per person per year, in both the public and private sectors, at an average cost of approximately $600 per day. Therefore, in the first nine months of the operation of the subsidy, the notional saving to Medicare was about 161,000 hospital days, which would have cost the public hospital system approximately $96 million. However, over the same nine months, the Commonwealth paid out $1.125 billion in private insurance subsidies, approximately twelve times the amount of the savings!

It can be argued, on the basis of experience in previous years, that as well as the additional 214,000 people who have taken out private insurance, up to another 156,000 would have dropped out, in the absence of the government subsidy. However, even if the possibility of declining membership is taken fully into account, the notional saving to Medicare would still be only $190 million.

Another way of looking at the financial outcome, is that the cost to taxpayers for every person who has been induced to take out private insurance or dissuaded from dropping it, is $4043 per year. This is a phenomenal sum of money, given that per capita spending for all health services in Australia, not just hospital services, is only about $2700 per year. The cost of the subsidy to taxpayers amounts to about four times the average cost of hospital services per person per year!

The government's objective of expanding the size of the private sector is likely to be undermined further by the requirements of the Harradine amendment. The amendment requires private health insurance funds to be able to offer "no gap" or "known gap" policies by June, 2000, in order to qualify for the 30 per cent subsidy. However, the most likely result of the requirement will be a sharp increase the cost of private insurance, because funds will not be in a strong bargaining position in relation to the medical profession.

There are enormous obstacles in the path of eliminating the "gaps" that the privately insured pay for medical services. First, there are large variations in the fees that doctors charge, so that to abolish all gaps would be very expensive, in the absence of an agreement with the profession to reduce the extremes. And the Australian Medical Association is strongly opposed to mechanisms that would limit the freedom of doctors to decide what fee to charge.

The Harradine amendment is of little practical benefit in this situation because there is no requirement that the funds be able to offer policies that are "affordable". It is most likely that fixed gap policies will be offered, based on whatever fees that doctors demand. The prospect of losing clients if they cannot offer the subsidy, will put the funds in a very weak bargaining position vis-à-vis the profession. "Known gap" or "no gap" policies, based on the fees that doctors demand, will raise the cost of private premiums, perhaps to the extent that only wealthy people will be able to afford them. Most consumers will gain nothing. Medical fees will continue to rise and a flow-on effect will probably be created in relation to doctors' demands under Medicare. The requirements of the Harradine amendment may quickly cancel out the impact of the 30 per cent subsidy!

Only the Commonwealth government has the power, through its capacity to pay medical benefits, to exert control over doctors' fees. It has chosen not to use this power but rather to leave the task to health insurance funds. This unequal contest promises to be of most benefit to doctors, particularly specialists.

Not a single extra service (except perhaps childbirth interventions) is produced by the expenditure of these large sums of taxpayer's money. High opportunity costs are thus involved. For example, for the $1.5 billion being spent on the subsidy, Australia could have more than 7000 additional acute care hospital beds, increasing hospital capacity and services by more than 11 per cent.

If it were decided that the same amount of money should be spent on relatively cheap community services, such as home care services, support for carers, community health centre services, women's health services or support for people with disabilities - all services for which demand greatly outstrips supply - then the increase would be enormous. Expenditure on all such services currently amounts to only about 5 per cent of the health bill.

Why is the government so anxious to prop up the private sector, a sector from which citizens are steadily moving away in favour of Medicare? The official answer is that when people drop out of private insurance they increase the load on the public sector. As Minister Wooldridge said in his Media Release, 18 November, 1999:

"We have well and truly turned the corner after years of neglect by Labor which saw a quarterly private insurance drop out rate of around half a per cent, placing ever increasing pressure on our public hospitals."

This argument has an element of validity: the private does carry out some of the work that would otherwise be done in the public sector. But as the figures above demonstrate, the savings are small and the costs exorbitant.

The argument is also misleading in several other ways. In the first place, with support for Medicare running at around 90 per cent, Australians have shown themselves willing to pay the taxes necessary to fund a good public health system. Extra money, if needed, could come from general revenue or a small increase in the Medicare levy.

Second, people with private insurance still use the public sector for many of their needs because the private sector does not produce a full range of services. It tends to focus on profitable, elective procedures and weekday activities. It is in the public sector that the very expensive treatments and services, such as transplant, cardiac and emergency services are primarily produced.

Third, while it may be cheaper for governments, at least in the short term, if the private sector is large, it is very much more expensive for the community as a whole. The reason is that there are few cost controls in the private sector - once people are covered by private insurance, insurance funds pick up the bill. There are no controls on either the volume of services produced or on the prices charged for them. Moreover, very comfortable, if not luxurious, amenities and short waiting times for elective surgery are expensive. The result is rapid cost escalation, which is reflected in ever higher private insurance premium costs.

In fact, as Australian history during the period of the Fraser government shows, it is impossible to run a large private sector alongside a high standard public sector. Such dual systems are grossly unstable and constantly threaten to self-destruct because as the cost of private insurance increases, people drop their cover. Governments then find themselves on a relentless treadmill of regularly having to inject the private system with more public subsidies in order to keep the numbers up. Such a situation is exactly what the private sector wants, of course. Increased spending translates directly into higher incomes for both doctors and private hospital owners.

It is sometimes argued that two tier health systems, such as that being promoted in Australia, increase choice. As Minister Wooldridge claims, a strong private sector provides the right balance for a strong public sector improving access and choice in terms of health care for all Australians (Media Release, 18 November, 1999, p. 2).

However, choice is not increased for all Australians. Choice is increased only for the relatively well off who can afford the high cost of private insurance. Further, if Medicare is allowed to run down because health dollars are being invested in the private sector, those who rely on the public system will have no choice but to use sub-standard care.

Private insurance gives people faster and more convenient access to certain kinds of services and sometimes to greater perceived quality as well. However, as a community, we do not usually subsidise the consumption choices of the rich, at least not directly. On moral grounds, it may be fairer to use taxpayers' money to subsidise mansions and limousines, access to which does not have implications for an issue as important as health.

[New Doctor Issue 72 Contents Page]

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