Restoring Medicare

Journalists never can test the veracity of a budget leak, but in the case of the 2001-02 Budget the leaks were generally accurate. But how does one treat an anonymous leak nine months before a budget, in a document that I found one morning stuck under my office door, signed simply Restif? (Even the eighteenth century French gossip reporter of that name identified his region when he signed himself Restif de la Bretonne.)

Clearly, with an election and meetings of the Expenditure Review Committee to be held between now and May 2002, the document below is a draft, but whose?

Statement by the Minister for Health, May 21, 2002

It is in the health portfolio that the government has made its most far reaching policy changes, in the interests of all Australians. We are committed to restoring Medicare.

Spending initiatives

Our main spending initiative is a $2.1 billion increased annual outlay for hospital services. I will be meeting with my state counterparts early in June to re-negotiate the Commonwealth-State health agreements incorporating this higher outlay, a 30 percent improvement over the forward estimates for 2002-03.

We will also re-introduce the Commonwealth Dental scheme, with an outlay of $150 million in the coming year.

These initiatives, together with the normal growth in other health programs, including the Pharmaceutical Benefits Scheme (PBS) and Medicare payments, will see health expenditure rise by $4.0 billion, an increase of $2.7 billion over the forward estimates.

Funding - revenue neutral

This increase will be fully funded by withdrawal, from July 1, of the 30 percent rebate for private health insurance, and an extension of the one percent Medicare surcharge to all high income earners, regardless of their health insurance status.

This is in line with our government's commitment to Medicare as a fully funded program for all Australians; no longer will we subsidize people to evade their responsibility to contribute to the community's health care needs. Our vision for Australia is one in which we share our health care and education systems. Over the last ten years our society has fragmented into gated communities. We have heard the citizens' voices and will share in the work of restoring our common wealth. Later this evening my colleague, the Minister for Education, will announce our parallel policy in relation to schools and universities.

While the gross saving from these measures will be $3.0 billion, we will continue to offer a 30 percent subsidy to those who choose to use private hospitals from their own resources, rather than through private insurance. This is in line with our government's desire to see private savings increased, and to ensure health outlays are not wasted on unnecessary bureaucratic overheads. This subsidy is estimated to cost $400 million in 2002-03, but to phase down as people's confidence in Medicare is restored. We accept that this restoration may take time, for the damage has been inflicted over many years by people with an interest in destroying our health care system - people who have had no hesitation in lying to frighten people away from Medicare.

One of those lies has been the suggestion that as private insurance declines so too will the private hospital system. We do not wish to see the demise of private hospitals; unlike the private insurers many are providing useful health care services. We will re-iterate to the states the principle embodied in the health agreements that they are free to purchase health services from public or private hospitals. Our budget includes a once-off allocation of $100 million for private hospitals which will allow them to bring their management and expenditure control systems up to the best practice standards of public hospitals.

From July 1 2003, contributions to private health insurance funds will be subject to GST at the general rate of 10 percent. We envisage that, as in other countries with high quality universal health schemes, there will be a small residual demand for private insurance, but we expect this to stabilize at around 5 percent of the population. There will a once off industry and labour market adjustment package of $100 million to help employees of the private funds to develop skills to equip them for productive employment.

Health centres

While funding re-direction is important, our main changes in the health system are structural. In association with the states, we will review impediments to concentration of all ambulatory health services into integrated centres, incorporating diagnostic services, general practitioners, nurse practitioners, pharmacists, mental health professionals and other allied health professionals. Unlike the health centres introduced in the 1970s, these will have more flexible ownership arrangements and will be universal rather than being focussed on disadvantaged communities. Our preferred model is for each centre to be a separate company with equity held by local citizens and local professionals, but other models are possible.

In consultation with the states, community organizations and professional associations we will examine details of funding options for such health centres, with a view to re-directing medical, pharmaceutical and some other payments to these centres, with specific allocations within each centre to be at the discretion of its local management. Our two guiding principles in our funding arrangements are that they remove incentives, embodied in the current Medicare arrangements, for providing short consultations, and that full use is made of all health care professionals.


The most far reaching change in this model is for pharmacists, who will become active partners in prescribing and monitoring medications within health centres. We envisage that the stand alone pharmacy, isolated from medical services and selling a large range of non-medical items, will phase out over the next five years.

Another pharmaceutical reform will be to encourage illness associations to take over the supply of medications for those with long term, stabilized, chronic conditions. The Asthma Association and Diabetes Australia will be invited to register for this program in 2002-03. This will integrate the supply of medications with the specialist services available from such associations, and it will allow savings on the wholesale and retail markups currently in the PBS pricing schedule. These savings we will pass on to the associations.

Longer term

These budgetary measures are within a longer term vision for health care. I want to spell out that vision, for too often governments have simply "muddled through" in health care, lurching from one real or imagined crisis to another, with little consideration other than short term budgetary outlays.

We are guided by four fundamental principles. First, health care should be seen as a shared public good, not as a form of charity. Second, the Commonwealth will continue to provide countervailing power against economically concentrated provider interests. Third, health care should not be burdened by unnecessary bureaucracy or overheads. Fourth, the Commonwealth should provide support necessary for national priorities in health care.

The first principle leads to universality of access. This is not to rule out co-payments; indeed they have become an accepted part of our health care system. But they have been haphazard; in some cases they have been capped, in other cases, such as with private hospital episodes, they have been open-ended. In this regard the private insurance firms have been particularly inept at providing protection - indeed, the service they have provided has not been insurance at all, but an elaborately expensive bill payment supplementation. From 2004-05, there will be a universal cap on co-payments of $1000 per family per year, or $600 per single person, reducing to $100 for pensioners. Up to this limit there will be no subsidy from Medicare or any other programs for health care; past this limit there will be complete cover for all health care expenses. For those who lack the cash reserves for immediate treatment there will be three months to make payment. This will combine the best of market forces and of universal insurance, in contrast to the present arrangements which combine the worst aspects of these funding models. It will also mean that in any one year most Australians will make no draw on public finances for health care, but this is not to a saving initiative; it is revenue-neutral. Rather it is designed to share the burden of co-payments more equitably than at present, and to remove some perverse incentives in the present system, such as the no-cost medical certificate available from a high turnover bulk-billing clinic. In order to prevent co-payments being exploited by service providers, they will be paid to and collected by the Health Insurance Commission.

The second principle preserves a role for the Commonwealth in regulating prices, where there is concentration of market power. Australia will re-constitute the Pharmaceutical Benefits Advisory Committee as an expert panel. Just as Australia has led initiatives in agricultural trade, Australia will work towards a multilateral agreements on drug purchasing, using the combined purchasing power of smaller industrialized states, such as Australia, and of developing countries, to reform world pharmaceutical markets. Our aim will be to see reduced prices, greater availability, and a re-direction of pharmaceutical research into the needs of people living in tropical countries and of those whose conditions provide only a small market. Similarly we will be active in regulating medical fees, while giving flexibility in internal charging and remuneration methods inside health centres. In imaging and similar capital intensive services, which have caused difficulty for the Commonwealth in the past, we will move to two-part pricing to remunerate capital costs separately from cost per service, thus removing incentives for over-servicing. Our major initiative under this principle remains the concentration of purchasing power into a single national insurer. Experience in Australia and internationally had proven that a fragmented private insurance industry is incapable of controlling health care costs.

Our third principle is to remove overheads and bureaucracy from the health care system. The phase out of private insurance will relieve the economy of a $500 million annual overhead administrative burden on the health system, and will relieve users of the transaction costs of dealing separately with insurers and Medicare. We will initiate an immediate inquiry into liability insurance, with the aim of developing a national no-fault system for compensating victims of medical misadventure. This will always be a burden on the health system, but we can relieve it somewhat by removing the overheads of legal and insurance services. And we will enter into negotiations with the states with a view to seeing all health care funding and program coordination is provided through state governments. This will reduce bureaucratic costs and the current incentives for cost-shifting. The Commonwealth will retain a role in price control, where needed, and in provision of national services, in accordance with our fourth principle.

Provision of national services is our fourth principle. My colleague, the Treasurer, has already outlined our government's initiatives in tertiary education, which will see Commonwealth scholarships replace HECS for selected university courses. I am pleased to announce that the largest quota of scholarships, after teaching, will be allocated to nursing. The Commonwealth will also ensure there is an adequate commitment to public health; over the years, under the system of portfolio budgeting, public health has been crowded out by growing expenditure on health care. As from 2003-04, all health care funding will be channelled through the to-be-established Health Care Financing Administration, which will also take over the Health Insurance Commission. Public health will remain within the health portfolio, where it will be immune from the budgetary squeeze of health care programs. This will involve a re-allocation of public service functions, rather than any growth in administrative outlays.

I commend these initiatives to the House.

Restif's note claims he or she found it on the passenger seat of a late model grey Commodore parked with open windows on Brisbane Avenue, Barton, two doors from John Curtin House. The corporate Commodore is the badge of achievement for upwardly striving public servants, but leaving a document in an open Holden is crude - it was ASIO's bait in the Petrov case. Would someone use that ruse again? Leaving a car open was normal in the 1950s - the FJ Holden needed the occasional airing to expel the smells of sweat other bodily emanations of ASIO officers - but who would leave a car window open in a Canberra winter?

The document is quite at variance with the present government's policies - it shows too much vision, consistency and economic responsibility to come from Coalition sources. There was a time when the Labor Party could have written such a document, but we have heard nothing along these lines in the current drawn-out election campaign - just a little tinkering at the edges to give some palliative care to our dying national health scheme. Was the author someone in Treasury or Finance? Not likely, for the concerns in this document stretch far beyond the budgetary obsessions of these departments; its writer has shown some concern for wider community and economic issue. Someone in Health and Aged Care? But where, in that Department, would we find people willing to suggest fundamental structural change?

I leave it to the readers of Dissent to speculate.