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Part 1 of this article was published in New Doctor #78.

In Part 1 of this article, published in the preceding issue of New Doctor, the Federal Government’s A Fairer Medicare – Better Access, More Affordable package was examined in relation to universal health coverage, Medicare, privatisation and private health insurance. Part 2 continues the discussion.

A health care payment system relying heavily on co-payments (out-of-pocket charges at point of service), such as that proposed in the Federal government’s A Fairer Medicare – Better Access, More Affordable package, will result in a less equitable system with more health costs met from average household incomes instead of taxation. It can readily be demonstrated that co-payments financially advantage both the wealthy and doctors. Under the government’s proposal, doctors in affluent areas with low numbers of concession card holders will get paid more; the most affluent in society will have better access yet pay less over all; and the users - usually the sick, young families and those on a lower income – will have worse access and higher costs. Any transfer of payment for health care from taxation to user-fees benefits the wealthy.

Volumes of well-documented research over many years from Europe, the USA, Canada and developing countries show health care co-payments restrict access and place a heavier burden of costs on the poor and sick without improving efficiency.1-10 Cost sharing schemes are complex, expensive to administer and likely to increase the total cost of the health care system.10 The World Health Organization’s "European Health Care Reform Analysis on Current Strategies" review of cost sharing concluded that direct charges to patients are unlikely to generate substantial revenue without adverse equity consequences.11 Despite this, co-payments are regularly raised by governments and groups such as the Australian Medical Association (AMA) as a ‘solution’ for tight health care funding. It is interesting that while consistently supporting co-payments for medical consultations, the AMA lobbied on access grounds against co-payment increases in the Pharmaceutical Benefit Scheme when it would have no effect on doctors’ incomes.

Various rationales are given by proponents of user fees, some philosophical, some outright falsehoods presumably the result of deluded blindness or prevarication. These rationales include:

Let us consider each of these in turn.

1. User-pays philosophy

A user-pays philosophy involves notions of patient responsibility and accountability. This has strong credence with the Howard government, the AMA, the libertarian viewpoint and also wields great influence within the contemporary version of the ALP. It comes down to social values and the distribution of financial gains and losses, rather than about the effectiveness or efficiency of the health care system.12

This user pays philosophy involves a belief that people should pay something for a service they are receiving. If it is ‘free’ at the point of service it will not be appreciated or people will use the service inappropriately - people don’t value things unless they pay for them. Underlying this position is the reluctance of the wealthy to subsidise others whom they deem to be undeserving users or abusers of the system. Their belief is that costs should be borne in proportion to use. Users of health services are not paying their ‘fair’ share relative to other taxpayers whose taxes support the system. This is the libertarian and neo-liberal free market ideology of individual responsibility with health care being seen as a tradable commodity.

The libertarian, neo-liberal line resonates within the medical profession:

Proponents may justify and obscure this stance with proclamations that people who can afford it should pay something for their health care. This belies the reality that wealthy people actually pay less in a system of private fees and more if the costs are borne through the tax system.

Absence of user charges is often criticised on the grounds that it encourages excessive demand for health services and thereby contributes to escalating expenditure. This is referred to as the problem of ‘moral hazard’.17 Co-payments are said to be necessary to stem the tide of excessive use. This is not supported by evidence.

There are three major demand studies in health care. These are the Stanford University (1972, 1977); the Saskatchewan (1963- 1973); and the RAND Corporation Health Insurance Experiment (HIE) (1974-1977) studies.1-3,18 These and other studies and analyses indicate that while medical care utilisation does respond to price, the rate of response overall is fairly small compared with many other goods and services.19 The greatest impact on reduction in medical care and outpatient visits is seen among lower-income groups. Services which are patient-initiated, such as initial general practitioner visits rather than follow-up visits, are more price sensitive.11 Reductions in patient-initiated visits may be off-set by increased provider-initiated visits. When the whole population is involved, supplier-induced demand becomes more influential. Excessive utilisation tends to be a supply-side rather than a demand-side problem. User co-payments thus play only a limited role in restricting growth of use in medical services.1,2,4,11,17

That co-payments curtail unnecessary, ‘trivial’ or ‘frivolous’ medical visits is a common furphy regularly seen in letters to the newspapers and proclamations by doctors’ groups. This ignores the fact that the imbalance of knowledge between user and provider means the user is not in a suitable position to judge what is a necessary visit. Research confirms that co-payments affect access into the system with an equal negative effect on both ‘necessary’ and ‘unnecessary’ services.3,4 As financial disincentives such as co-payments disproportionately affect the less well-off, this belief would imply that ‘frivolous’ visits disproportionately arise from the less well-off.

From a Sydney GP who occasionally posts to the DRS website bulletin board:

Another regularly outspoken doctor:

The AMA viewpoint:

and the RACGP:

In spite of the evidence, proponents of user fees ignore public health principles and attempt to use inappropriate free market principles such as there is "no price signal" without an up-front cost, to justify their cause.22 When convenient the opposite line that "market forces don’t apply to general practice" is used in relation to competition between doctors.23

Rather than being "beaten over the head with a financial hammer when ill", Leeder suggests people need to be better educated to make appropriate use of services.24

User charges are often supported on the grounds that they provide additional revenue while at the same time act as a cost control measure for governments wanting to limit health care funding.17 It is important to realise that by ‘cost control’ what is really meant is ‘public sector cost control’. Co-payments do not contain costs, and can in reality increase them. Co-payments are simply a means of shifting costs from public to private pockets so that costs are borne by different people, namely, users of health care rather than taxpayers.25

Evans, in Financing health care: taxation and the alternatives, concludes that it makes no economic sense to argue that countries cannot afford to meet growing needs for health care through tax financing and therefore must draw in other sources of financing.26 A country’s ability to sustain a given level of expenditure is not increased by moving money through one financing source rather than another. Indeed, there is overwhelming evidence that a given level of health care actually costs more, not less, if financed through private insurance.

User charges are sometimes supported on the grounds that they improve efficiency and outcomes. The evidence suggests the opposite. The World Health Organization’s "European Health Care Reform Analysis on Current Strategies" review of cost sharing found that cost sharing is not a useful tool for improving efficiency or containing health costs.11 A World Health Report points out that the effect of co-payments is often to ration rather than rationalise the use of services.27

Cost sharing schemes are complex and expensive to administer. The cost of subsidies and safety nets introduced to counteract negative equity effects may outweigh any supposed efficiency gains.11,12,17 Uncapped co-payments are inflationary and lead to increasing medical fees.4 In Australia, primary health care represents only 10% of total health outlays. Most costs are generated in the hospital and specialist sectors. Increasing co-payments for general practitioner attendances has the potential to divert people away from primary care and into more expensive secondary and tertiary services.

There are negative equity outcomes for access and cost. Co-payments disadvantage the poor and sick and benefit the wealthy and private health care providers, regardless of safety nets, tiered payments or other measures . Direct payments are highly regressive - the most regressive way to pay for health.27-29 All co-payments redistribute money from users of health care to health care providers and upper-income taxpayers.26

Co-payments affect access to health care. There are winners and losers. User charges fall most heavily on low-income groups. This can deter the utilization of appropriate health services and adversely affect health outcomes.3,17,26,30 For example, after co-payments were introduced on optometrist visits in the UK, cases of undiagnosed glaucoma increased.31 The RAND Health Insurance experiment showed that cost-sharing tended to be associated with especially marked reductions in the probability of medical use and outpatient visits among lower-income groups. These effects were strongest in relation to services for children from low-income families.3

In contrast, co-payments improve access and increase utilization for upper income groups by deterring those with lower incomes.6,32,33 For people with the necessary resources, any form of partial out-of-pocket payment within a predominantly tax-financed system allows the purchase of preferred access to a service primarily paid from the taxes of others.26 Introducing or increasing charges results in a redistribution of services away from those on low incomes towards the well off, as doctors provide more services for their remaining patients. Sections of the medical profession appear to observe an impact but remain conveniently unaware of the ramifications.

The impact on access is observed in the following comments from GPs who have introduced private billing in their practices: 35

These statements ignore the consequences to the patients who are not attending due to the cost. Are they are all just whingers and time wasters? Do they know they are whingers and time wasters and therefore not attend if they have to pay? Or alternatively are whingers and time wasters confined to those who cannot pay?

The government’s ‘A Fairer Medicare – Better Access, More Affordable’ package only seeks to maintain bulk-billing for concession cardholders and encourages doctors not to bulk-bill others. The proposed plan makes it quicker and easier for doctors to charge what they like while retaining bulk-billing just for the ‘needy’. The proposal would lead to devolvement of bulk-billing to a safety net and an escalation of health costs.

Doctors opting into the scheme would have to bulk-bill all concession card holders. In compensation they would get a higher Medicare rebate for card holders and would be able to directly bill the Health Insurance Commission (HIC) plus charge an up-front co-payment for non-card holders. Doctors would be paid less for bulk-billing non-card holders while at the same time making it easier for them to charge a co-payment. The government is even going to give financial assistance to install the ‘electronic claiming system of HIC Online’ so you can ‘swipe your card’! These changes encourage doctors not to bulk-bill non-card holders. Having a different rebate for those deemed disadvantaged engenders a schism between patients into the system. This changes the nature of Medicare.

The proposal will result in an escalation of doctors’ fees and total health care costs. Cost restraints on fee setting are removed. Economic disincentives to the bulk-billing of anyone without a concession card are built into the proposal. Governments would have no incentive to increase rebates. Even if fees are initially capped this is unlikely to remain and charges will eventually increase as governments are more likely to raise caps than rebates. Co-payments are legitimised as an alternative payment method. Allowing direct billing with co-payment may mean some people initially pay less up front but greater costs will end up coming from household budgets as fees will inevitably rise and rates of bulk-billing decline. People who once may have been bulk-billed will no longer be. Rather than the tax office, doctors (or, more often, their receptionists) would be the arbiters of who ‘deserves’ to pay what.

The advantage John Howard and Kay Patterson offer Australians is that they won’t have to queue in Medicare offices. But what caused the queues in the first place? – diminishing rates of bulk-billing and closure of Medicare offices!

Allowing doctors to directly bill the HIC and charge a fee on top would be a boon for private billing doctors. It is what the AMA has long been driving towards.36,37

The AMA, however, has problems with the complete package and the ‘strings attached’. These relate to the ‘trivial’ size of the increase in the rebate offered, that it is determined by geographical area and that being able to directly bill the HIC plus charge a co-payment is linked to bulk-billing concession card holders. The AMA would never be happy with bulk-billing all concession card holders and protest at the compulsory nature and loss of ‘autonomy’ of doctors.

The AMA believes the number of people entitled to health care cards is ‘farcical’ and many recipients are not deserving or ‘genuinely disadvantaged’. An urban myth of people with concession cards parking their Mercedes or BMWs in the surgery car park and expecting to be bulk-billed has been cultivated among the medical profession.40

Here are examples from general practitioners of the arbitrary nature of assessing who pays what:

One wonders how desperate need and truly financially disadvantaged are determined and whether this is an appropriate setting, circumstance or time to have to go through a potentially distressing financial assessment. People when ill do not want to have to worry about financial consequences or engage in complex negotiations over the cost of their care.

Negative responses to the government’s ‘A Fairer Medicare’ package, though coming from different ideological standpoints, have been across the board from groups representing doctors (e.g. AMA, ADGP, RACGP, RDAA, DRS), community groups (e.g. Australian Consumers Association, Australian Council of Social Service), unions, alliances supporting Medicare (e.g. National Medicare Alliance) and the opposition political parties. The community has been expressing alarm and concern seen through polls, letters to the paper, response in talk-back radio and community meetings. Those who remember pre-Medibank/Medicare are particularly concerned.

The medical profession has been vocal:

A survey of general practitioners conducted by Dangar Research for Australian Doctor suggests the package would have little impact on doctors who do not bulk-bill or only bulk-bill some patients. The biggest uptake would be amongst doctors already bulk-billing and the main reason given (38%) was that it would "give them the right to charge other patients".46 The package is even less popular in rural areas. All this leads to the conclusion that the package will reduce bulk-billing in the general population and limit it mainly to a sub-group of concession card holders. Over 85% of GP visits by over 65 year olds are currently bulk-billed so the potential of a beneficial impact for this group of people is also questionable.

Shifting health care financing to the private sector and household incomes may appear to provide the government with a convenient ‘solution’ to complex funding and policy decisions. Co-payments have a deceptively simple appeal. While tax-based financing is preferable on grounds of efficiency and equity, increases in taxation may be seen as politically unacceptable. In recent decades, governments tend to seek election on platforms of reducing taxation. Despite this rhetoric, however, there is no economic constraint to an increase in public funding for health care in Australia. Australia has low ratios of taxation to GDP and public to total health care expenditures. As surveys have shown, an increase in taxation to fund health care would not appear to be unacceptable to the public. The primary constraint to increased public funding is political ideology.

In addition, there are other sources of public funding that would not require raising taxes. It has been estimated that the cost of the private health insurance (PHI) rebate is over $3.6 billion.47 This could be more efficiently and equitably invested in sustaining our universal public health system. Abolishing the Medicare levy exemption alone could provide up to $1.1 billion annually. The $917million over four years ($228 million annually) of the A Fairer Medicare package appears paltry in comparison. Of this $917million, only $346.2million is allocated for bulk-billing incentives and then only for concession cardholders. $35.3million is to subsidise installation of the electronic claiming system to make it more convenient to not bulk-bill non-cardholders and $89.6 million funds the 30% rebate of new PHI gap coverage that is expected to arise as a result of the package.48

Innovative policies are required to support general practice and allow the delivery of equitable, quality primary health care. Bulk-billing doctors are finding it hard and becoming harder to find. An increase in rebates and other incentives could be linked to bulk-billing. Alternatives to fee for service such as population-based payments, capitation, practice grants and the establishment of publicly funded multi-disciplinary primary health care centres should be explored. These measures would be more cost effective and decrease the ‘need’ for out of pocket payments such as co-payments.

Before Howard makes any changes that tear at the very fabric of Medicare, we as Australians need to look closely at what we want from our health care system - how we view it and how we want to fund it, rather than floundering in a sea of piecemeal policies and philosophical uncertainty.

Canada has recently had the Romanow Review 49 and the UK the Wanless Report 50 into their respective health care systems. Australia needs an independent national inquiry into our health care system. This should examine underlying values, long term goals and strategies to develop a national health plan for the provision of health care on an equitable and cost effective basis.

1. Beck RG, Horne JM. Utilization of Publicly Insured Health Services in Saskatchewan Before, During and After Copayment. Medical Care 1987;18:787-800.

2. Manning WG, al e. Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment. The American Economic Review 1987;77:251-277.

3. Newhouse J, al e. Free For All? Lessons from the Rand Health Insurance Experiment. Cambridge: Harvard University Press, 1993.

4. Richardson JR. The Effects of Consumer Co-payments in Medical Care. Canberra: National Health Strategy Background Paper No.3, AGPS, 1991.

5. Schofield D. Ancillary and Specialist Health Services: Does Low Income Limit Access. Canberra: National Centre for Social and Economic Modelling (NATSEM) Discussion Paper No. 22 AGPS, 1997.

6. Elofsson S, Unden A-L, Krakau I. Patient charges - a hindrance to financially and psychosocially disadvantage groups seeking care. Social Science & Medicine 1998;46:1375-1380.

7. ILO/PAHO. Out-of-Pocket Health Expenditure in Latin America and the Caribbean: The Efficiciency Rationale for Extending Social Protection in Health. Mexico: International Labour Organisation (ILO), Pan American Health Organisation (PAHO), 1999.

8. Arhin-Tenkorang D. Mobilizing Resources for Health: The Case for User Fees Revisited. November 2000: Commission on Macroeconomics and Health (WHO), 2000.

9. Simms C, Rowson M, Peattie S. The bitterest pill of all: The collapse of Africa’s health systems. London: Medact & Save the Children Fund (UK), 2001.

10. Stoddart GL, Barer ML, Evans RG. User Charges, Snares and Delusions: Another Look at the Literature. Vancouver,: Centre for Health Services and Policy Research, 1993.

11. Saltman R, Figueras J. European Health Care Reform: Analysis of Current Strategies. Copenhagen: World Health Organization Regional Publications, European Series No.72, 1997.

12. Stoddart GL, Barer ML, Evans RG, Bhatia V. Why Not User Charges? The Real Issues. Vancouver: Centre for Health Services and Policy Research, 1993.

13. Dr Paul Neeskens. A Script for Medicare, Guest Views: Australian Doctor, 2 May 2003.

14. Dr N Boyapati. Letters, The Bulletin, October 9, 2002.

15. RACGP. Private Billing for you to understand, for you to decide: The Royal Australian College of General Practitioners, 2003.

16. Dr George Quittner. Our Health System.... Confuses Everyone: Avenue Road Medical Practice Web Page http://med.clinipath.com.au/quittner/news/news.HIC.html

17. Robinson R. Chapter Seven - User charges for health care. In: Kutzin J, ed. Funding health care: options for Europe. Buckingham: Open University Press, 2002:161-183.

18. Lohr K, Brook R, Kamberg C, et al. Use of Medical Care in the Rand Health Insurance Experiment: Diagnosis- and Service-specific Analyses of a Randomized Controlled Trial. Medical Care 1986;25 (Supplement):531-538.

19. Phelps C. Health Economics, 2nd Edition. Reading: Addison- Wesley Educational Publishers, 1997.

20. Boyapati N. Free doctors create shortage Letters, The Age, July 23 2002.

21. AMA. Demand and supply effect primary health care. GP Network News Issue 03, Number 1 - Friday, 10 January 2003.

22. Phelps K. Speech by AMA President, Dr Kerryn Phelps to the Sydney Institute - The Future of Medicine in Australia, 24 Februrary 2003 http://www.ama.com.au/web.nsf/doc/WEEN-5K39W2

23. Phelps K. Transcript of Media Conference - Dr Kerryn Phelps, AMA President, Parliament House, Canberra - AMA Federal Budget Submission 2003-2004, 13 February 2003 http://www.ama.com.au/web.nsf/doc/WEEN-5JQ8MN

24. Leeder S. Keynote Address, Doctors Reform Society National Conference 7 August 1999 "How you can help maintain the health of Medicare". New Doctor Summer, 1999/2000;72.

25. Barer ML, Bhatia V, Stoddart GL, Evans RG. The Remarkable Tenacity of User Charges: A Concise History of the Participation, Positions, and Rationales of Canadian Interest Groups in the Debate over "Direct Patient Participation" in Health Care Financing. Vancouver: Centre for Health Services and Policy Research, 1993.

26. Evans RG. Chapter Two - Financing health care: taxation and the alternatives. In: Kutzin J, ed. Funding health care: options for Europe. Buckingham: Open University Press, 2002:31-58.

27. WHO. World Health Report 2000 – Health Systems: Improving Performance. Geneva: World Health Organization (WHO), 2000.

28. van Doorslaer E, Wagstaff A, van der Burg H, Christiansen T, Citoni G, Di Biase R, Gerdtham U-G, Gerfin M, Gross L, Hakinnen U. The redistributive effect of health care finance in twelve OECD countries. J of Health Economics 1999;18:291-313.

29. Wagstaff A, van Doorslaer E, van der Burg H, Calonge S, Christiansen T, Citoni G, Gerdtham U-G, Gerfin M, Gross L, Hakinnen U. Equity in the finance of health care: some further international comparisons. J of Health Economics 1999;18:263-290.

30. Mossialos E, Dixon A. Chapter Twelve - Funding health care in Europe: weighing up the options. In: Kutzin J, ed. Funding health care: options for Europe. Buckingham: Open University Press, 2002:272-300.

31. Laidlaw DAH, Bloom PA, Hughes AO, Sparrow JM, Marmion VJ. The sight test fee: effect on ophthalmology referrals and rate of glaucoma detection. BMJ 1994;309:634-636.

32. Whitehead M, Evandrou M, Haglund B, Diderichsen F. As the health divide widens in Sweden and Britain, what’s happening to access to care? BMJ 1997;315:1006-1009.

33. Hughes Tuohy C, Flood CM, Stabile M. How Does Private Finance Affect Public Health Care Systems? Marshalling the Evidence from OECD Nations. J of Health Politics, Policy and Law 2001.

34. RACGP Media Release. General Practice - Endangered Species? 1 March 2003: Royal Australian College of General Practitioners http://www.racgp.org.au/document.asp?id=8803

35. RACGPOnline. Private Billing - Questions and Answers: Royal Australian College of General Practitioners http://www.racgp.org.au/document.asp?id=7521

36. Metherell M. Doctors’ groups revive co-payments plan Sydney Morning Herald, 14 February 2003.

37. Dr David Rivett. Medicare myths help no one, Gut Feelings: Australian Doctor, 6 March 2003.

38. AMA. AMACGP says no to bulk billing pressure. GP Network News. Issue 03, Number 7, 21 February 2003 http://www.ama.com.au/web.nsf/doc/WEEN-5JY838

39. Phelps K. Speech to 2003 AMA Parliamentary Breakfast, Parliament House, Canberra. ‘Health Policy - Here, There and Medicare’, 6 March 2003.

40. There are three concession cards issued by Centrelink - the Health Care, Pensioner Concession & Seniors Health Cards. The Health Care Card is held by 1.7 million mainly unemployed people with income cut-offs $15,000 for a single person, $25,000 for a couple. For a small number on family tax benefit with three children the cut-off point is about $50,000. The Pensioner Concession card, predominantly held by the disabled and the elderly has income cut-offs $30,000 for single people, $50,000 for a couple. The Seniors Health Card is controversial with no assets test and income cut-offs $50,000 for single people, $80,000 for a couple. Presumably the mysterious concession card patients in BMWs and Mercedes are within this group but hopefully during their lifetime they would have significantly contributed to the public purse through taxation.

41. Richards D. Card sharps, News Review: Australian Doctor, 17 April 2003.

42. AMA Media Release. Government admits it cannot afford to pay for Medicare, 28 April 2003 http://www.ama.com.au/web.nsf/doc/WEEN-5M2AJJ

43. AMA, ADGP, RACGP, RDAA. Joint Statement - Australian Medical Association (AMA); Australian Divisions of General Practice (ADGP); Royal Australian College of General Practitioners (RACGP); Rural Doctors Association of Australia (RDAA) - Government’s Medicare Package, 1 May 2003 http://www.ama.com.au/web.nsf/doc/WEEN-5M5AX5

44. RACGP Media Release. Federal Budget Fails to Address Australia’s GP Crisis, 13 May 2003: Royal College of General Practitioners, http://www.racgp.org.au/document.asp?id=9611

45. DRS Media Release Howard’s Destruction Plan for Bulk-Billing, 29 March 2003. http://www.drs.org.au/media/2003/290303.htm

46. Liondis G. GPs reject Government’s package. Breaking News: Australian Doctor, 9 May 2003.

47. Segal L. Why support private health insurance in Australia? New Doctor; Winter 2003:8.

48. The Medicare Bag, Medical Observer, 2 May 2003 p2, 2003.

49. Romanow RJ. Building on Values: The Future of Health Care in Canada – Final Report. Ottawa: Commission on the Future of Health Care in Canada, 2002. http://www.healthcarecommission.ca/default.asp?DN=cn=2,ou=Stories,ou=Suite247,o=HCC

50. Wanless D. Securing our Future Health: Taking a Long-Term View Final Report. London: The Public Enquiry Unit, HM Treasury, 2002. http://www.hm-treasury.gov.uk/wanless

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