The state and territory health ministers are to present the federal government this week with demands for an automatic reimbursement for the extra costs they have had to pick up following the decline of private health insurance. Each 1 per cent decline in private cover equals about $30 million extra burden on the public system in NSW. In 1993 41 per cent of people were privately insured; now it is 32 per cent. The states have not had compensation for the past 4 percentage points of drop.
Of course, if the federal government were confident that the changes it has made to give incentives for people to take up or stay in private health cover would work, it should have no hesitation in agreeing to a formula that gave the states a guaranteed amount for further falls in private cover. But the federal government will not be so cocky. Indeed, all the evidence suggests that the incentives and penalties introduced by the Howard Government to boost private cover are failing.
At present it seems that the policy of the federal government is to destroy Medicare by stealth. It cannot do it openly because it knows from opinion polls that a huge majority of Australians support the principles of Medicare. Instead, the government refuses to fund the public system adequately; what money it does have goes in a large subsidy to the private funds under the guise of a sweetener to individuals; it refuses to increase Medicare schedule fees thereby driving doctors away from bulk-billing; it refuses to allow the private funds to have any control over the costs of the services they are insuring against. In short it is trying to appease everyone by not making any decisions which might upset any of the stake-holders. But in the long-run it will displease all. Its failure to make decisions could result in the collapse of Medicare and the arrival of a US-style system which has the double disadvantage of huge costs (more than 12 per cent of GDP) without universal coverage.
The Coalition parties have, however, been right about one thing. Medicare in its original form was always unsustainable. At present the Medicare levy raises about $4 million. Private insurance raises a similar amount. Neither goes anywhere near paying for health costs. Health totals $33 billion in government budgets. About a third of that is dedicated to the Pharmaceutical Benefits Scheme. People have deserted private cover since 1984 because the benefits Medicare paid out were so good. For most people private cover was virtually only of any use to people who wanted to jump the queue for elective surgery.
The trouble is that the money that has left the system with the decline of private cover has to be replaced. Alternatively, the level of care will fall or its universality be compromised.
The new subsidy to middle- and low-income earners who take out or keep private cover is foolish. Much of it will go to people who would happily stay in the private system.
Rather the Government should shake off its ideological shackles and get more money and greater efficiency into both sectors. It should raise the Medicare levy as suggested by Professor Peter Leeder this week in an article in Australian Medicine. Moreover, it should make it a levy on gross income, rather than taxable income.
The Government should not allow the erosion of the schedule fee to force doctors slowly to abandon bulk-billing. Rather it should bite the bullet and introduce a co-payment that can be administered efficiently in a similar way to bulk-billing.
Medicare as an insurer is already very efficient, largely because of its huge economies of scale. It spends just 3 per cent on administration. The private funds spend four times that.
The system needs more money, but that should not be the only solution. We should not just chuck money at the problem. It is clear that the financial strain put on public hospitals has spurred efficiency and innovation. They have engaged in more day surgery; hospital-in-the-home programs; better bed scheduling and so on. The private sector has not had a similar stimulus. In the private sector providers know the insurer will pick up the tab and pass it on to the insured. But it cannot go on. The insured are getting jack of it.
The private insurers must be empowered to influence cost outcomes and introduce flexible premiums. Community rating may sound equitable, but it has had the opposite effect. The theory was that everyone should pay the same premium for health insurance, irrespective of risk. The young and fit paid as much as the aged. Inevitably, young people thought they were paying an unfair burden and they fled private cover in droves. The result was a far lower pool of insurance funds so the elderly who have tended to stay in the funds have had to pay more. It would have been better to craft premiums according to risk to keep as many people in cover as possible.
It would also help if private funds could take over some responsibility for total patient care. It does not mean making medical decisions or insisting that certain doctors or hospitals must be used, but it does mean giving the funds the flexibility to offer total coverage if treatment regimes meet certain criteria and less coverage if not. Some financial incentives must be put in place. We like to imagine that health care is not driven by money; but to a significant extent it is in both the public and private sector.
The figures the states will put on the table this week will show the financing of the Australian health system, which medically still does an excellent job, contains dangerous self-destructive elements which must be reformed.