Volume 173 Issue 1

Looking Foward Medicare: options for the next 25 years Richard B Scotton. MJA 2000; 173: 41-43 The best long-term option for healthcare in Australia would be a system of managed competition - - More articles on Administration and health services While it is difficult to predict the evolution of healthcare over as long a period as 25 years, we can be reasonably sure that some of the trends of the past 25 years will continue, and possibly accelerate. Thus, medical knowledge and the technology and techniques for its application will continue to advance and, on balance, this will increase costs. Two consequences will be that: equitable access, regardless of capacity to pay (ie, universality) will continue to be a basic component of living standards in an economically developed society, especially in the context of widening income disparities; and efficiency -- doing what is done at least cost (technical efficiency) and using scarce resources to maximise health outcomes (an aspect of allocative efficiency) -- will become an increasingly important component of health policy. Equity and efficiency Despite the theoretical trade-off between equity and efficiency, which applies in certain circumstances, these two objectives are not inconsistent. In fact, a universal national health insurance program gives the government a level of capacity to constrain total health expenditures, which is a necessary (but not sufficient) component of a strategy to increase efficiency. On the other hand, I am convinced that advocacy of improving efficiency by abandoning universal coverage is mistaken, and/or is the product of ideology or self-interest. Consequently, health policy options need to have as their goal the maximisation of efficiency within the framework of the overall equity goal. "Efficiency" in the economic sense means not only producing at minimum cost, but also managing the system so that it produces, at any given level of cost, that mix of outputs which contributes most to social goals and improved health outcomes. This will inevitably involve changes in industry structure. More complex technology and wider appreciation of the intricate interrelationships between epidemiological and social factors in health will call for an ever-increasing scale and more sophisticated interconnections between various parts of the healthcare sector. These factors impose increasing stresses on present structures for financing and delivering health services in all developed countries. The Australian scene In Australia, multiple program and funding streams, overlapping jurisdictions in the federal system of government and poorly articulated relationships between public and private sectors add layers of complexity to the problem. It is a tribute to the funders, managers and providers of health services that our system works as well as it does. On the whole, it provides universal and equitable access to most clinically effective health services, at an overall cost which compares well with those in most comparable countries, and is lower than some. The average citizen requiring health services would be as well treated in the Australian system as anywhere in the world. In other words, there is no "crisis" which constitutes a case for radical reform in the short term, but rather gradually increasing stresses -- organisational, financial and cultural -- flowing from changing patterns of morbidity and medical care. These stresses are largely or wholly unrelated to universality of access, to the present extent of public/private funding and service provision, or to the overall responsibility of public authorities for regulation of the system. A rational response to the current situation seems to justify a twofold strategy: first, implement some relatively straightforward measures to deal with specific difficulties, and second, work toward changes in management and funding arrangements to facilitate the evolution of delivery systems to achieve better health and related social outcomes from the available resources (the amount the community is prepared to allocate to these ends). Many of the options floated in recent years do not meet this specification. To my mind there are only two sensible directions for future reform: Limited reforms designed to ameliorate some systemic problem areas, while maintaining Medicare in more or less its present form; and More substantial reconfiguration of the legal and financial framework of the universal program in the direction of managed competition as a means of promoting increased efficiency of purchasing and service delivery. These options are not mutually exclusive. Rather, the first might stand alone, or could constitute a preliminary stage towards implementing the second. In fact, if one intended to move to managed care, solving some of the systemic problem areas would be a logical first step. The short term -- limited reforms There are several useful reforms which could be undertaken without amending the basic structure of Medicare. The most obvious and important deficiency of the present system relates to access to free hospital treatment, which is currently subject to widespread and lengthy waiting periods. This is largely due to the unsatisfactory nature of the financial arrangements, in which Commonwealth Government funding has never been tied to performance. The original Medibank cost-sharing arrangements allowed only limited control of total costs, and the subsequent method of block grants to the States, which have been in operation since 1981, have enabled some State governments to reduce their level of hospital funding to the point at which access to services has been significantly affected. This situation could be justified when there was no workable measure of hospital output, but since the development of casemix funding and the Australian national diagnosis-related groups (AN-DRGs) in the early 1990s this excuse no longer holds. The performance of the public hospital system, and the incentives for State governments to treat patients, could be greatly enhanced by replacing most or all Commonwealth Medicare grants to the States by DRG-adjusted case payments direct to hospitals. These payments could be calculated as a percentage of the cost per DRG episode, up to a volume of services determined by the Commonwealth Government. This payment system would have many benefits beyond the demonstrated increase in efficiency within hospitals. In particular, it would provide a basis for including hospital costs in the pooling of funds for coordinated care arrangements. It would also inhibit (but not eliminate) cost-shifting, and would facilitate detection of abuses, such as the partial diversion of public inpatients to private status. In the longer term, the substitution of case payments for Commonwealth grants would extend the options for more substantial structural reform of the universal program. The implementation of such payments lies well within the readily available powers of the Commonwealth Government. Other serious deficiencies of the present arrangements have been graphically described by a former State health administrator.1 They include the fragmentation of programs, poor articulation between public and private sector arrangements, and lack of comprehensive data on service utilisation at the individual patient level. The consequences include incapacity to control overservicing, receipt of benefits by ineligible persons, and barriers to developing coordinated care. The causes are partly the jurisdictional overlaps between Commonwealth and States, partly restrictions imposed by privacy legislation and its interpretation, and partly a general paralysis in policy development. A determined Commonwealth Government might be able to achieve a good deal in all the above respects within the framework of a totally public program, but there would be widespread reservation about the extent to which the Australian people would wish to concede to a government authority, however benign, the implied degree of control over their service use. The British National Health Service, whatever its virtues, is not a model for Australia in the 21st century. Perhaps, more importantly, a monolithic public program would lack incentives to increased allocative efficiency. In my view, increasing the efficiency with which scarce resources are used to produce health services is the most important determinant of our capacity to provide universal access to state-of-the-art healthcare in the long term. The standard means of achieving this is to increase the exposure of the participants to market incentives. For these reasons, I have become convinced that the best long-term option for Australia would be a system of managed competition. The longer term -- managed competition? In a managed competition system, private organisations would be free to compete with public provider(s) in the provision of services covered by public benefit programs such as Medicare, free public hospital care, pharmaceutical benefits, nursing home benefits and so on. The idea is a simple one. However, the formulation of a model in which a private market in healthcare would maximise efficiency in producing good health outcomes, free of risk shifting and other types of gaming, has been a more complex exercise. It has been said that there are lots of simple answers to complex questions, and that they are all wrong. All health systems are complex, and the Australian system, in several respects, is more complex than most. Any realistic solution is bound also to be complex, and, in the present context, it is possible to offer only the baldest outline of the managed competition model which I have developed progressively over the past decade (Box).2,3 In conclusion, the point has to be made that the rise in real costs of state-of-the-art healthcare will make it increasingly necessary to limit total expenditures on health. Raising the efficiency of resources used to produce services is the only way to minimise the consequent stresses. The managed competition model offers a framework within which higher efficiency can be pursued without sacrificing the principle of universal access, which remains as much as ever a core component of a humane society. References Paterson J. National healthcare reform: the last picture show. Melbourne: Department of Human Services (Victoria), 1996. Scotton R. Managed competition. In: Mooney G, Scotton R, editors. Economics and Australian health policy. Sydney: Allen & Unwin, 1998: 214-231. Scotton R. Managed competition: the policy context. Aust Health Rev 1999; 22(9): 103-121. Authors' details Richard Scotton is a health economist. He and John Deeble, as Research Fellows at the Institute of Applied Economic Research, University of Melbourne, between 1965 and 1970, formulated the program that became Medibank. From 1972 to 1979, Scotton was centrally involved in implementing Medibank, as Special Adviser to Minister for Social Security Bill Hayden and first Chairman of the Health Insurance Commission. Later appointments were Director (Planning) and Commissioner, Health Commission of Victoria; member of the Medicare Planning Committee appointed by Minister for Health Neal Blewett; General Manager (Policy and Planning), Victorian Accident Compensation Commission; and board member, Australian Institute of Health. Health Economics Unit, Centre for Health Program Evaluation, Monash University, Melbourne, VIC. Richard B Scotton, AO, BA, BEc, PhD, Honorary Professorial Fellow Make a comment Essential features of a managed competition model2,3 All current publicly supported programs - Medicare, free public hospital care, pharmaceutical/nursing home benefits, etc - to be rolled into one, so that all services and benefits for each individual would be paid from the same budget, thus eliminating much cost shifting and encouraging efficient service use. Defined roles for Commonwealth and State governments: the Commonwealth responsibilities limited to financing and the legislative/regulatory framework, and the States to public service provision and overseeing public budget holders. Organisation and management of health service delivery deputed to organisations entitled budget holders, which would be paid (by the Commonwealth Government) a risk-rated capitation for each person enrolled with them, and which would be required to meet all program costs incurred by their enrollees. Risk rating at the individual level is essential to minimise "cream skimming" and other forms of risk selection by budget holders. All persons not opting to be covered by a private budget holder would be covered automatically by a regional budget holder or, as a last resort, by the Health Insurance Commission. Private budget holders would be required to cover all services included in the public program, plus a minimum private hospital entitlement. They would be free to provide wider entitlements to private care, at unsubsidised additional cost. All providers (public and private) would depend for their incomes on payments from budget holders, under contracts or other arrangements (ie, there would be no government benefits or subsidies payable directly to service providers). It could be expected that basic tables (ie, those offering a minimum package of services) would involve some exposure to managed care (ie, medically directed restriction of choice) as incentives to efficient resource use become effective. Another outcome would be that services would be increasingly geared to the needs of people with greater health problems, since they would carry larger capitations. Over time, managed competition could be expected to result in profound structural changes in service provision. Back to text

Richard B Scotton

Looking Forward Medicare's maturity: shaping the future from the past John S Deeble MJA 2000; 173: 44-47 By any objective standards Medicare has performed extremely well - - More articles on Administration and health services There are almost as many suggestions for reform of Medicare as there are participants in the system. Depending on the perspectives, ideologies and interests of the proponents, these calls for reform range from its extension and consolidation under either Commonwealth or State management, through various permutations of private and public operation, to relegation of Medicare to a welfare safety net. Some people hold any universal program to be "unaffordable", although for whom is rarely made clear. Some see Medicare's open-ended medical insurance as wasteful, while others (and often the same people) view any limits to hospitalisation as a major fault. Doctors complain about fee levels, the Commonwealth and State governments argue over funding shares, and consumers blame "the system" for the fragmentation of their care. None of these viewpoints are surprising. Medicare is an insurance program, but all of the delivery systems it supports are also seen as part of it, and these will rarely meet all the demands of funders, providers and patients. Given the different perspectives of each group, no system ever could, and Medicare's ability to respond is often limited by factors outside the insurer's control. Political scientists like to point out that in public policy the relevant question is rarely "where do we go?" but more often "where do we go from here?". So first we need to explore where we are now. Medicare since 1986 The summary data for Medicare and the services it covers for 1985-86 and 1997-98 (the most recent year for which full information is available) are shown in Box 1. Expenditure for all health services has risen from 7.5% to 8.4% of gross domestic product (GDP), and most of the increase was in the recession years 1990-1992. However, for Medicare-covered services (medical, public hospitals and optometry), the rise has been very small -- only 0.2% of GDP. In 1995, Australia's health spending as a proportion of GDP was in the middle of the range of health spending of comparable First World countries. Medical services: On the medical side, average benefits paid per person rose by 31% (in constant 1997-98 prices) and the number of services increased by an almost identical amount (30% per person).1 Average fees per service were therefore almost constant in relation to general price changes, and fell by only about 2% when compared with consumer prices (ie, much less than is often argued). On average, fees charged were lower than the schedule level in every year,1 despite the common impression of widespread over-schedule billing. The latter is mostly by specialists, largest for insured patients in private hospitals, and a greater problem for private health insurers than for Medicare. Hospital services: Overall hospital admissions per person rose by nearly 50% over the 12-year period. That was an extraordinary rate of growth, mostly occurring after 1992, and all a result of same-day treatments; overnight admissions per person were almost unchanged (Box 2). Total hospital outlays per person increased by 52% in 1997-98 prices, but the public and private sector experiences were quite different. Per person, public hospital expenditures rose 39.5%, comprising a 34.5% increase in admissions and a rise of about 4% in real costs per admission.1 Nearly all of the increases in admissions were in public patient use (Box 2). In contrast, private hospital outlays per person rose by 115%, the product of a 90% increase in admissions per person and a 13% rise in unit costs. About half the increase in usage was a result of private patients switching from the public hospitals to private hospitals. The underlying growth in private hospital admissions was nevertheless substantial, particularly since the proportion of the population covered by private insurance fell by 18%. Financing Apart from complaints from doctors over fees, the main issue has been the roles of the Commonwealth and State governments in public hospital funding, with each party blaming the other for any perceived shortfall. The details are complex, but the essential data are summarised in Box 3. This shows annual changes in public hospital expenditure and changes in the Commonwealth Government's share. The three time periods shown are the five-year Medicare agreement periods, which set the level of Commonwealth funding. There were clear links between the two variables -- when the Commonwealth share was less than 50% the growth in total outlays fell -- and, despite all the rhetoric, that division in source of funding still underlies the system's behaviour. The level of Commonwealth grants is therefore crucial and their inadequacy in one particular period (1988-1993) has been the main destabilising factor. The other and more popular issue is the role of the Medicare levy, which is often criticised for funding only a small proportion of Medicare's costs. But no one ever claimed that it should do otherwise. It was intended to cover only that part of the medical benefits side, which had previously been met by private insurance -- about half of the total amount paid before Medicare was introduced in 1984. The politics of the time demanded a demonstrable linkage between new outlays and the Medicare levy. This still applies. In 1997-98, the yield of $3760 million was almost exactly half the Medicare benefit payout. The hospital side had always been funded from general taxation via grants to the States and that continued, ironically funded partly by the withdrawal of a 30% tax concession on private insurance, very similar to the subsidy reintroduced last year.2 Medicare today By any objective standards Medicare has performed extremely well. As I have said elsewhere,1 in any other context an industry which increased its output by 30%-35%, with almost no increase in its share of the national product, would be acclaimed as a major success story! Costs have risen almost exactly in line with prices generally and, except for pathology and imaging, growth in medical service use has stabilised since 1994. All of this was achieved in a healthcare system which gives patients and providers more freedom than almost any other system worldwide. But the clamour for change continues. Not all of the exploding demand for hospital admissions has been met and the impact of that demand, plus the costs of upgrading private hospital technology, has threatened private insurance viability. The 30% premium subsidy for private health insurance introduced in 1999, and recent changes from community rating to risk rating, attest to this -- no funding system, public or private, could long sustain an annual growth in hospital admissions of 3.5% per person, nearly twice the growth in GDP. The problem is a medicotechnological one, not one for Medicare alone. People do not admit themselves to hospital, doctors do -- and that is where the explanations must be found. However, some groups have contrived to present it as a crisis on which governments must act and which threatens the whole existence of a universal insurance scheme. What should be done As might be guessed, I am not among those supporting major structural changes to the present system. Special interests apart, the most substantive criticisms concern division of responsibilities for management and funding between the Commonwealth and State governments, institutions and professionals. All these predate Medicare. Its acceptance of the delivery systems, payment methods and reward structures of the time has also been criticised. Badly coordinated care, wasteful cost-shifting and weak incentives for efficiency are held to result. For many people, timidity rather than excessive zeal would be the main complaint. There is truth in this contention, although the Australian experience is not unique. No national insurance scheme has greatly changed the culture and practices which preceded it. The historical and constitutional divisions between the Commonwealth and State governments over medical and hospital services, insurance powers and revenue raising are so deeply intrenched that they could never have been resolved within the time frame which political action required, particularly in the circumstances of 1973-75 (see the articles by Scotton, and Hayden). Almost all proposals for payment change have met strong opposition from the medical profession, although some very modest progress has been made with program-based payments to general practitioners. How much this matters is debatable. The governmental (Commonwealth-State) division is certainly complicated, sometimes irrational and the source of much angst over cost shifting. The latter fascinates the bureaucrats and absorbs a disproportionate amount of their time. However, it works both ways, and I am not convinced that divided financial responsibility has as much effect on the fragmentation of services as many critics claim. The recent coordinated-care trials have shown that, at the operational level, pooling funds is not a sufficient condition for high-quality, efficient care.3 Poor management skills, rivalries and professional myopia are equally important problems. At a higher level, it should be possible to separate "desirable" cost rearrangements from stratagems, although distrust between the Commonwealth and States does not help. It would be naive to expect any major realignment of governmental roles in the foreseeable future. However, the climate could be changed if the Commonwealth Government were to take responsibility for all medical costs, including those in public hospitals and medical training. It would mean no more than setting the Federal-State financial division slightly differently, with no immediate implications for budgets or administrative responsibilities -- existing public hospital appointments would continue with only cost-neutral grant adjustments. That would be much more logical than the present situation in which the Commonwealth supports medical costs directly in the private hospitals, but has no role at all in the public sector. Separate government funding for all medical costs is standard practice in the Canadian system, and there are considerable advantages in it. Among other things, it would change much of the debate over cost shifting, but that would be only one of the anomalies addressed. Commonwealth funding of in-hospital medications has already been mooted on the pharmaceuticals side. The efficiency arguments are more fundamental. For the most radical reformers, any system in which providers both select and deliver services must be inherently flawed. In theory, competitive markets achieve efficiency by separating these two functions. Emulating their operation should therefore be the aim, at least as far as possible. The practical manifestations are schemes for separating purchasers from providers (even funder-purchaser-provider splits) with arm's-length dealing and varying degrees of competitive behaviour. Governments are entitled to mandate insurance and how its costs should be borne, but both the insurance function and the supply of services should be diversified. State hospital systems and single insurance authorities like Medicare are incompatible with such models. These are the same arguments and issues as were traversed 25 years ago, and, like most debates in which the evidence is a mixture of empirical data and behavioural assumptions, they can rarely be settled. My view is that, while there are some supporting services in which standards and outcomes can be sufficiently defined and measured for arm's-length dealing, they cannot be applied to healthcare as a whole. The basic problems of uncertainty and inequalities of information between users and providers were first explored by the Nobel Prize-winning economist, Kenneth Arrow, nearly 40 years ago.4 For patients, they imply a level of trust and delegation to providers unparalleled elsewhere, and the same is ultimately true for purchasers on their behalf. The United Kingdom and New Zealand were the first countries to embrace purchaser-provider separation and internal markets within their public systems. Their experience has shown that, at a general level, it is impossible to write contracts which sufficiently define the obligations of each party, and that the information costs of trying to monitor such contracts have been extremely high for very modest gains. Both systems have now been modified considerably. I am therefore sceptical about most market solutions, and equally doubtful about isolating funders from both user and provider contact. In the Australian context, that doubt is particularly relevant to proposals which would create more "independent" authorities outside the present system. It might be worthwhile, but it could also serve to simply shift responsibility. As it is, Medicare depends for adequate funding on a network of political obligations -- on the Commonwealth in return for money collected through the levy, and on the States in return for Commonwealth grants. These commitments could easily be avoided if government contributions became discretionary and there was someone else to blame. What changes are most likely For the foreseeable future, the medical side of Medicare will almost certainly remain, although technology and corporatisation will force some changes. The diagnostic services are prime examples. They are the fastest-growing expenditure group and the least satisfactory subjects for fee-for-service payment. Per person outlays for pathology and imaging have risen by 38% over the past five years, compared with a growth of only 5% for all other medical services.5 Recent attempts to cap growth have had only a limited effect, and, in pathology, a few corporate providers are now so dominant that their relationship with Medicare is more like commercial contracting than professional fee reimbursement. Imaging is heading in much the same way and commercial interests are making inroads into general practice as well. Potential responses by government and the medical profession cannot be canvassed here, but they can not wait too long. It is on the hospital side, and particularly the relationship between the public and private sectors, that there is most controversy. Australia is unique in having substantial private hospital and private insurance industries operating alongside a universal public program. Both Medibank and, originally, Medicare provided subsidies to private hospitals. They and the regulated private insurance were seen as supplementary to the public system for people who valued choice of doctor, hospital and time of treatment, but they were still regarded as a part of the Medicare system. As shown earlier, the result has been a slow decline in the proportion of the population holding private insurance, but not in the absolute number of patients treated privately and, paradoxically, a very large increase in private hospital admissions. Both perceptions and policy have changed significantly in recent years. Rhetorically, the emphasis has been on the competitive independence of private insurance, with a shift in its depiction from being supplementary to Medicare to being first a complement and then, most recently, an alternative to it. That is the thrust of the current recruitment campaign, however obliquely expressed. The purchase of advantage is recognised and an explicitly two-tier system encouraged by such devices as the levy surcharge on uninsured higher income earners and the portrayal of private insurance membership as a civic duty which assists the poor. There are many people who believe that these measures and the $1.7 billion premium rebate are simply precursors to either means testing Medicare or allowing people to opt out of it. Some realities It is hard to predict political decisions. But it is also easy to exaggerate the impact of current policies. In reality, all the present activity will not raise private insurance membership to much beyond a third of the population -- the same as in 1996 -- and the best estimate is that, although savings to the public hospital system in the long run might reach about $450 million (still only 3% of its total outlays), that is a long way off. None of the big-picture parameters will change. However, both costs and hospital use will rise. Costs -- in its rush to facilitate medical gap insurance, the Government's present restriction to "contracting" doctors will be removed. Average charges will inevitably increase (with the 30% Commonwealth funding) and, in the process, challenge the legitimacy of Medicare's whole schedule fee system and cost control. How can two levels of officially sanctioned charges both be right? Hospital use -- utilisation must rise because unrestricted hospital access is what private insurance offers and is bought for. But Australians are already among the highest hospital users in the world. In 1997-98, our rate of overnight admissions was 159 per 1000 population. In Canada it was 105 per 1000, down from 145 per 1000 in 1986.6 In the United States, the 1996 rate was 117 per thousand and falling.6 These are very substantial differences. It would be a pity if expediency and the demon of managed care prevented any serious thinking about their justification and how they came to be. As it is, one side of the Australian system is trying to contain hospitalisation as much as possible, while the other is effectively promoting it. References Deeble JS. Medicare: Where have we been? Where are we going? Aust N Z J Public Health 1999; 23: 563-570. Deeble JS. Health care under universal insurance: the first three years of Medicare. In: Butler JRC, Doessel DP, editors. Health economics: Australian readings. Sydney: Australian Professional Publications, 1989. Department of Health and Aged Care. The Australian Coordinated Care Trials: Interim Technical Report, Canberra: The Department, 1999. Arrow KJ. Uncertainty and the welfare economics of medical care. Am Econ Rev 1963; 53(5): 941-973. Department of Health and Aged Care, Medicare Statistics, 1984-85 to December Quarter 1999. Canberra: The Department, 98, 99, 106. Organisation for Economic Co-operation and Development. OECD health data 99 [on CD-ROM]. Paris, OECD, 1999. Authors' details John Deeble is Adjunct Professor of Economics in the National Centre for Epidemiology and Population Health, at the Australian National University. He was a Senior Research Fellow at the Institute of Applied Economic and Social Research (University of Melbourne) when he and Richard Scotton formulated the first proposals for universal health insurance. During the Medibank period he was a Special Adviser to the Minister for Social Security, Chairman of the Health Insurance Planning Committee and Deputy Chairman of the Health Insurance Commission. From 1977 to 1983, he was Director of the NHMRC Health Economics Research Unit and was appointed Special Adviser to the Minister for Health, Dr Neal Blewett, and Chairman of the Medicare Task Force in 1983-84. Subsequent appointments included Founding Director of the Australian Institute of Health and Welfare, and First Assistant Secretary of the Department of Health and Community Services. He was a Health Insurance Commissioner for 15 years to 1999. National Centre for Epidemiology and Public Health, Australian National University, Canberra, ACT. John S Deeble, AO, PhD, BCom, DipHospAdmin, Adjunct Professor of Economics. Reprints: Professor J S Deeble, National Centre for Epidemiology and Population Health, Australian National University, Canberra, ACT 0200. Make a comment 1: Vital statistics of Medicare, 1985-86, 1997-98* 1985-86 1997-98 Percentage increase Outlays as a percentage of GDP All health services Medicare only 7.5% 3.7% 8.4% 3.9% 0.9% 0.2% Outlays per person (1997-98 prices) Medical At fees charged At schedule fees At benefits paid $277 $300 $250 $386 $391 $328 39% 30% 31% Hospital Total Public Private $575 $483 $92 $875 $678 $197 52% 39% 115% Services per 1000 population Medical 7580 9850 30% Hospital admissions Total Public Private 193 142 51 288 191 97 49% 35% 90% *Data from Deeble 1999.1 GDP=Gross domestic product. Back to text Back to text Back to text

John S Deeble

Looking Forward The future of Medicare and health service financing Stephen R Leeder and Ian A McAuley MJA 2000; 173: 48-51 If we can afford to pay for healthcare, we can afford Medicare - - More articles on Administration and health services "Never make predictions, particularly about the future", was George Bernard Shaw's advice to futurologists. Shaw saw more of the future than most -- he died in 1950, aged 94, when the life expectancy of men in Britain was 67 years. Two years earlier, Aneurin Bevan,* Minister for Health in the Attlee Government,† had introduced the National Health Service (NHS) Act, the prototype for universal tax-funded healthcare like Australia's Medibank and Medicare. When the NHS was introduced, the prevailing view was that healthcare expenditure would stabilise once unmet need had been satisfied. But, from 1900 to 1950, the life expectancy of men in Britain had risen from 49 to 67 years, because of improved living standards and, latterly, cures for infections.1 Prescient indeed would have been the academic in 1950 who could have foreseen that lengthened life would result in a host of new healthcare needs, that technologies would be developed to meet those needs, and that Bevan's stability of expenditure on health would prove to be illusory. Speculating on the future of healthcare delivery is no less hazardous now than it was in 1948. Nevertheless, the major forces shaping the future generally are manifest in present trends. If we were developing scenarios about commodity prices we might well accept that, in a globalised world economy, the policies of national governments have, at most, a marginal effect. In the case of healthcare, however, this is no easy task. The experience of the past 25 years suggests we might expect at least four changes of government over the next 25 years. That would indicate an on/off sequence for Medicare, much as we have seen in the past 25 years, and this has not been totally related to which side of politics is in power. During Labor's time in office, the governments of Bob Hawke and Paul Keating reintroduced universal hospital care, but also brought in a much higher level of patient copayments in healthcare, particularly for pharmaceuticals. The present Liberal-National Coalition Government has reasserted a commitment to Medicare, and has tended to shy away from market forces in the private sector, encouraging community-rated insurance rather than self-reliance.2 Yet, at the same time, the present government suggests strongly that those who can afford to have private insurance should do so. A similar sentiment was evident in the proposals of the Labor Health Minister, Graham Richardson, in 1993. The vision of Medibank, and of Medicare, as defined by Neal Blewett when Minister for Health in the Hawke Government,‡ was as a universal shared system. During the 1990s, however, there was political pressure within both parties to redefine Medicare, in particular as regards access to public hospitals, as a charity system for the old and indigent. Because the basic principles of Medicare are not regularly articulated, Medicare becomes pliable to the fashions of government policy and subject to expedient interventions to solve real or perceived problems. Forty years ago, Charles Lindblom coined the term "muddling through" to describe a policy-making process which has no clear end or objective, but which lurches, reacting to one crisis after another.3 The Productivity Commission's modest proposal -- that the Commonwealth Government hold a broad public inquiry into Australia's healthcare system -- which might have led to a less muddled health policy, met with rejection.4 As an alternative to muddling, we can take account of probable changes in demand (especially ageing) and supply (especially technology) of healthcare and build a policy for the future. Demand -- an ageing population Box 1 shows population projections to 2025 for the 80 years and over age group. This age group will almost double in size over the next 25 years. Simple extrapolations of expenditure based on these projections are alarmist, for several reasons. For a start, many countries are already coping successfully with older populations (Box 2). The Scandinavian countries, especially, already have a population structure similar to that predicted for Australia in 2025, and are delivering healthcare for less than 10% of gross domestic product (GDP). These countries demonstrate the capacity of a single, national insurance scheme (similar to Medicare) to keep costs under control while providing quality care to an aged population. A further factor that may diminish demand for care among older people may be changes in lifestyle -- smoking, diet, and exercise are all major determinants of healthcare needs. Dr Wendy Everett, Director of the Robert Wood Johnson Foundation's health programs, suggests (as have many others) that behaviour contributes to 50% of our health status.7 These effects take decades to manifest. Thus, it is the "baby boomers", who grew up in the Golden Age of postwar prosperity and equality, whose lifestyle choices will become apparent when they are around the age of 70 to 80 in the year 2025. Another determinant is consumer attitudes to healthcare. Daniel Callahan, in his book False hopes, predicts the implosion of healthcare under the weight of grasping demand for perfect health unless all of us (in the case of the United States, especially older people) modulate our demands.8 He fears that the commercial imperatives that drive new pharmaceutical, biotechnological and bioengineering industries will further push demand for tinkering and spare parts to completely unsustainable levels. As an alternative, he posits education of the public that they cannot have it all, and this must begin now if a shred of equity in how healthcare is provided is to be retained. Thus, while the arithmetic of ageing is not complex, much depends on background economic capacity and the sociology of demand of the country concerned. Unless demand is disciplined, it is easy to see market forces overwhelming healthcare budgets. In that case, a scramble for care will occur, with only the rich doing well, further widening the already depressing gradients in health and healthcare between the rich and the poor.9,10 Presuming instead a more civilised society with a central health insurance agency such as Medicare, the omens are by no means bleak, as our Scandinavian colleagues demonstrate. Supply -- the role of technology Technological growth is blamed for much of the increase in health costs. Dr Joseph Newhouse, of Harvard University, told a National Health Summit in Sydney in 1991 that he attributed the increase in healthcare expenditure in the United States principally to technological change.11 He referred to the "march of science and the increased capabilities of medicine" as a large part of the cause, and cited renal (kidney) dialysis, transplantation, artificial joints and monoclonal antibodies (and other products of genetic engineering) as examples of this. However, the role of new technology is a mixed one, and, while there may be a Galbraithian "technological imperative", to suppose that it cannot be modified with time according to human design seems a defeatist position. Many technologies have revolutionised patient comfort, especially the replacement of old diagnostic procedures with new, far less invasive ones. The same can be said for many therapies that have enabled the massive movement away from prolonged inpatient care to ambulatory service. A step in the direction of the sane use of new technology is the development, in 1998, of processes of critical appraisal for services that might be supplied by Medicare. We have not yet seen what clinical care based on insights into the human genome may achieve, but not to consider this as a significant aspect of demand for future healthcare would be foolish. The other aspect of technology likely to have a profound effect is the Internet. It is shifting the locus of information in healthcare.12 Will it result in more shopping around, more time spent in argument, or will it result in more self-help displacing the need for formal care? Will it result in more mishaps through partial knowledge? How will it relate to Medicare? Can we afford Medicare? If we can afford to pay for healthcare, we can afford Medicare. That may sound glib, but, if we choose to share all or some of our healthcare costs, then Medicare is both the fairest and most efficient means of sharing. Community-rated private health insurance (a "privatised" tax) is a clumsy way to do what the taxation system does well. There is nothing that community-rated private health insurance does that Medicare and the taxation system cannot do better. The administrative expenses of private health insurance are $0.6 billion per annum, or 12.4% of premiums, compared with 3.7% for the Health Insurance Commission.13,14 The taxation system achieves community rating without the need for complex arrangements (such as apply with private health insurance), with "lifetime cover" and reinsurance, and because taxation is progressive it is fairer than private insurance. What would be the financial consequences of doing away with private insurance? Health insurance funds pay out $3.1 billion a year in hospital benefits.13 Of that, 30% is subsidised by the Commonwealth Government. Therefore, $2.2 billion of additional public funding could substitute for this funding. That could be met with a 0.75% increase in the Medicare levy. Its immediate effect would be to eliminate a large private bureaucracy. Its longer term effect would be to bring to the healthcare market the discipline of a single national insurer. Box 3 shows that countries with a larger proportion of healthcare funding passing through the public sector, through universal national health schemes like Medicare and Britain's NHS, tend to have much lower total healthcare costs. Would eliminating private insurance represent "socialised medicine"? No. It is quite possible to fund a private hospital system without private insurance. Medicare funds can just as easily go to private hospitals as to public hospitals. Would it be possible politically to raise taxes to pay for a universal Medicare? The evidence seems strongly to suggest it would. In both the 1993 and 1996 elections, healthcare was a major issue among voters. In 1993, the Coalition had promised private health insurance initiatives, while Labor did not, being more committed to Medicare. Polling researchers asked people which party was closest to their own views on various issues, including health policy. In response to that question, Labor had a 19% lead over the Coalition. In 1996 both parties promised support for private health insurance and the same polling found Labor's lead on healthcare had fallen to 5%.15 This year, in a multination poll, a small majority of Australians said they were in favour of higher taxes and higher public spending, with healthcare, at 75%, the second-highest priority (after education, at 78%).16 The last line of defence for private insurance is that, because it is "private", it is somehow superior to a "public" system -- a belief, known as "private sector primacy", which is grounded more in ideology than in economic rationality. The case does not rest on any economic analysis of whether a function is more efficiently carried out in the private or public sector; rather, it is a matter of faith that, if at all possible, it is always preferable for a function to be in the private sector. This argument has merit where private provision is accompanied by the discipline of price signals. But insurance, private or public, acts to suppress price signals, except for those of the premiums. At the point of use, there is no difference between the perception "Medicare will pay" and "private health insurance will pay". Insurers know this phenomenon by the quaint term "moral hazard". It applies whenever there is third-party funding. The real debate that we have to have If we dwell too long on the issues of private versus public insurance, we overlook more basic issues in health financing. We need now to address wider issues; the longer we defer this debate the harder it will be, as even uninformed views tend to become entrenched in a state of serious muddlement. This is especially so in a country with a large first- and second-generation migrant population, who have come from countries with a variety of contracts between citizen and government, from cradle-to-grave welfare through to a culture of laissez faire. We offer three issues for this debate. First, let us clarify the government's role in healthcare; is it charity or is it something we share? On that point we tend to the latter view. Even if we are generally inegalitarian, accepting the slings and arrows of life as a matter of private fortune, we may have a different attitude to healthcare. We may know our inheritances of material wealth and of physical and intellectual talent, but we do not know what lies around the corner when it comes to health. In the terminology of the Harvard philosopher John Rawls, when it comes to our healthcare needs we are in an "original position", and are more likely to choose to share our lot with others to the extent that we can.17 The second issue relates to the boundary between third-party funding and the market. The debate should not be between private and public insurance, but between insurance and the market. The final issue, after the first two have been settled, is how to rationalise the complex set of programs in healthcare. To those in the healthcare professions or who study healthcare from an academic perspective, it is complex. To the consumer it is bewilderingly unintelligible. Some programs have copayments, some do not. Simple procedures like ambulatory care usually require visits to several establishments, with different payment systems. Why, for example, is pharmacy separated from general practice? Why does a public hospital stay attract no copayment, while much less expensive procedures attract large patient contributions? Why is medical care separated from nursing care in private hospitals and nursing homes? Why does one have to wait days for test results which are generated instantly with new technology? Program divisions reflect ancient demarcations between crafts, and the complexities of Federal-State relations. Advances in medical technology have not been matched in structures and organisations providing healthcare. If Shaw had lived to 150, he would have found them surprisingly familiar. Will they be the same on his 175th birthday? Acknowledgements We extend our thanks to Professor John Deeble for helpful comments on drafts of this paper and to Amanda Dominello for assistance with editing. Footnotes * Aneurin Bevan, Minister for Health in the Labour Party (United Kingdom), 1945-1951. † Clement Attlee, Leader of the Labour Party (United Kingdom), 1935-1955. ‡ Bob Hawke, Labor Prime Minister, 1983-1991. References Organisation for Economic Co-operation and Development. Financing and delivering health care. Paris: OECD; 1987. McAuley I. Private health Insurance. Redefining the issues. Australian Rationalist 1988; 1 Spring: 47. Lindblom C. The science of muddling through. Public Admin Rev 1959; 19: 79-88. Industry Commission. Private health insurance. Canberra: Industry Commission, 1997. Australian Bureau of Statistics. Population projections. Canberra: ABS, April 2000. (Catalogue No. 3220.0.) Organisation for Economic Co-operation and Development. OECD health data 99 [on CD-ROM]. Paris: OECD, 1999. Stapleton S. New technology, smarter patients augur vast change. American Medical News 2000; March 13: 33. Callahan D. False hopes. New York: Simon and Schuster, 1997. Marmot M. Social determinants of health: from observation to policy. Med J Aust 2000; 172: 379-382. Mathers C, Vos T, Stevenson C. The burden of disease and injury in Australia. Australian Institute of Health and Welfare. Canberra: AIHW, 1999. Newhouse JP. Keynote address: The costs of medical care and consumer willingness to pay for new medical technologies: how much should we be spending on health care? National Health Summit, Nov 15, Sydney 1991. Clarke RL. Hard times and great expectations. Healthcare Financial Management 2000; March: 16. Private Health Insurance Administration Council (PHIAC). Operations of the registered health benefits organisations. Canberra: PHIAC, 1999: 87. Health Insurance Commission (HIC). Annual report 1998-99. Canberra: HIC, 1999: 79. Bean C, McAllister I. Short-term influences on voting behaviour in the 1996 election. In: Bean C, Simms M, Bennett S, Warhurst J, editors. The politics of retribution -- The 1996 Federal Election. Sydney: Allen and Unwin, 1997: 198. Peering into 2010 -- a survey of the future of medicine. The Economist 1994; March 19: 63. Rawls JA. Theory of justice. Cambridge: Harvard University Press, 1971. Authors' details Stephen Leeder is Dean of the Faculty of Medicine and Professor of Public Health and Community Medicine at the University of Sydney. He was foundation professor of Community Medicine at the University of Newcastle (1977-1985), and Director of the Division of Public Health and Community Medicine at Westmead Hospital in the Western Sydney Area Health Service (1985-1997). He was the foundation chair of the Board of Censors of the Australasian Faculty of Public Health Medicine 1990-1994, and has served two terms as National President of the Public Health Association of Australia. He chaired the Health Advisory Committee of the National Health and Medical Research Council, 1997-1999. Ian McAuley has worked as an engineer, as a diplomat in the foreign service, and in the Commonwealth public service. He studied public administration at Harvard, and since 1987 has been at the University of Canberra, researching and teaching in public sector finance. Faculty of Medicine, University of Sydney, Sydney, NSW. Stephen R Leeder, PhD, FRACP, FFPHM, FAFPHM, Dean, and Professor of Public Health and Community Medicine. School of Management and Policy, University of Canberra, Canberra, ACT. Ian A McAuley, BE, DipBus, MPA, Lecturer. Reprints will not be available from the authors. Correspondence: Professor S R Leeder, Dean, Faculty of Medicine, Edward Ford Building, University of Sydney, NSW 2006. steveATmedicine.usyd.edu.au Make a comment Back to text Back to text Back to text

Stephen R Leeder · Ian A McAuley

Looking Forward Medicare: diagnosis and prognosis Frances C Cunningham MJA 2000; 173: 52-55 The system of mixed public-private healthcare funding works well in Australia and offers the best foundation for the future - - More articles on Administration and health services Australians have now experienced 16 years of national health insurance with Medicare, although the program implemented in 1984 was largely a renamed version of its predecessor, Medibank, introduced 25 years ago. How will the healthcare industry and its external environment change over the next 25 years, and what will be the impact on Medicare? How should we best appraise Medicare's strengths and weaknesses, take account of the fundamental changes that have occurred in healthcare delivery, and apply the better intelligence we now have on financial incentives and delivery mechanisms to develop a more effective national health insurance program for the future? Appraising Medicare How do Australians view Medicare? In a 1998 survey conducted to measure public satisfaction with healthcare, only 19% of Australians agreed that, on the whole, the system works well and only minor changes are needed to make it better.1 Forty-nine per cent wanted fundamental changes, and waiting times for specialist care and non-emergency surgery was reported as the most important consumer issue. The survey also revealed a substantial loss of public confidence in the healthcare system compared with a decade earlier, when 34% of Australians felt that the system needed only minor changes. On the plus side, Medicare has established affordable universal coverage for publicly funded, public hospital services and largely publicly funded, privately provided medical and optometrical services. Australians also have excellent coverage for mainstream pharmaceuticals. With a view to controlling health expenditure, at present at $50 billion and 8.4% of gross domestic product (GDP),2 these services were seen by government as the boundaries of publicly funded Medicare. While our health expenditure is at the median for OECD countries, our life expectancy is above the average. Weaknesses in the Medicare public program are evident: universal coverage only includes medical practitioners and optometrists, and the provision of other publicly funded ancillary services and community health services varies substantially within the various State or Territory health systems. Medicare's financial incentives A valid concern with implementing a national health insurance program is that it tends to lock in place the existing healthcare system. In Australia, this has meant the maintenance of the open-ended, traditional fee-for-service approach to financing medical and optometrical services, with little change in the delivery system structure. There are increasing concerns about the geographic maldistribution of medical services, especially in rural areas. With an administered pricing system, it is difficult to get the prices "right", especially with the rapid technological changes affecting healthcare. Moreover, the structure of such systems can have powerful effects (some intended and undesirable) on services delivered. For example, payment of general practitioners under Medicare has created incentives for shorter patient visits and higher patient throughput. In addition, preventive services -- health screening and disease management programs, and patient education and health outcomes monitoring -- tend not to be as effectively implemented in non-managed systems as in managed systems. Although trials of coordinated care have been implemented in Australia in recent years, they have been primarily public-sector oriented, whereas the major overseas examples of long-term, financially viable care management systems are in the private domain. In the United States, in addition to the coverage that private sector managed health insurance firms provide for those with private insurance, the government has contracted extensively with these health insurers to provide care to beneficiaries in government programs as an alternative to traditional coverage. Split responsibilities and inefficiencies Medicare creates a separation of payment of most ambulatory medical care from inpatient care, with non-hospital medical services and pharmaceutical services funded by the Commonwealth, and hospital and day-surgery services funded through the States and through private health insurance. This means that there are major structural impediments to the provision of a "seamless" web of services through all levels of care. This separation of payment has also made it difficult to move away from an emphasis on inpatient care and the resultant high levels of hospital utilisation. In 1997-98, overall Australian hospital utilisation was 1075 bed-days per thousand population (excluding same-day admissions).3 This compares with the 1996-97 rates of 318 and 335 days per 1000 population in the United States for health maintenance organisations (HMOs) and non-HMOs, respectively.4 The 1997-98 Australian hospital admission rate (excluding same-day admissions) of 16%3 was almost three times the 1996 US health insurance rate of 5.7% (for both managed care and non-managed care).5 In the United States, this reduction in acute inpatient care has been accompanied by an increase in subacute, home health and skilled nursing facility care. This has not happened in Australia, with the result that we have excess hospital bed capacity in both the public and private sectors. An important general caveat about measuring service use is that the assumption "more is better" does not necessarily hold true in healthcare consumption. It is inappropriate to assume that more care -- or more costly care -- is better, or that reductions in service use necessarily indicate reductions in quality. Hospital utilisation in Australia thus presents a conundrum: in spite of having such high levels (by international comparisons) of inpatient admissions and bed-day utilisation, as well as excess bed capacity, there are significant problems with public-hospital waiting lists. The solution lies in better care management and in appropriate care at the appropriate level, rather than in funding for additional beds. Reform of private health insurance Although 10% of total health expenditure is funded through private health insurance,2 the role of private health insurance within Australia's healthcare system has not been clearly delineated. Is private health insurance a supplement to or an alternative to the public health system? Initial estimates of the cost of Medicare assumed that at least 40% of Australians would maintain their private health insurance cover.6 Levels of private cover declined from 60% immediately pre-Medicare in 1983 to 30.1% in 1998.7 The legislative changes introduced in 1995 were intended to make insurance better value for money through agreements made between health insurers and hospitals and health insurers and medical practitioners. These changes have resulted in more effective negotiations between insurers and private hospitals. Since coming into power in 1996, the Howard Liberal-National Coalition Government has made significant progress in modernising the regulation of private health insurance. Within a short timeframe, most of the key recommendations of the 1997 Industry Commission Inquiry8 into private health insurance have been introduced, with the exception of the recommendation for a broad public inquiry into Australia's health system. Australians value choice, whether it be in education, airlines or healthcare. Australians also value a fair go. The Howard Government has introduced strategies to ensure that we maintain a viable mixed private and public healthcare system in Australia. Compared with the financial contribution of those relying totally on the public system, the contribution of privately insured Australians was inequitable. The 30% tax rebate on health insurance premiums for consumers is one part of an overall strategy to ensure the continuation of a mixed public and private health system in Australia. There is bipartisan support for the rebate, with the Leader of the Opposition, Kim Beazley, promising its retention by a Labor Government.9 The rebate ensures that there is a fairer, more equitable approach to financing healthcare for those who choose to pay for private cover, in addition to their Medicare levy payments and their contributions through taxable income (estimates for which range from 5% to 10%). The Private Health Insurance Administration Council reports that a record 187 000 Australians have joined health funds in the first three months of this year, with the fastest-growing membership being in the age bracket 30-34 years.7 This means that more than six million Australians now have health insurance, the highest level since 1996. There has also been stronger growth in no-gap cover for hospital-related medical costs, after the Harradine* amendment. The latter requires health insurers to have no-gap products in place by 1 July 2000 in order to offer the 30% rebate to their members. The legislation, just passed by Federal Parliament (the Health Legislation Amendment (Gap Cover Schemes) Act 2000), will allow the private health industry to develop "no gap" or "known gap" schemes which will operate without the need for contracts. The introduction of Lifetime Health Cover on 1 July 2000 is currently resulting in continued growth in private health insurance membership. Major changes relating to the capital adequacy and solvency requirements of health insurers are to be introduced shortly to provide more clearly defined safeguards for consumers. Major impacts over the next 25 years The fundamental challenge for Medicare, with its financing and delivery systems belonging to the last century, will be coping with the impact of key trends envisaged for 2025. Most of these trends will affect the future costs of Medicare. The health insurance system of the future will also be shaped by the wider sociopolitical, moral and ethical environment, in terms of what is politically feasible and acceptable to the electorate. In particular, what will be the trade-off between the extent of public coverage and the tax burden? Also relevant will be our capacity to reduce behavioural risk factors across societal groups to achieve reductions in morbidity and increases in life expectancy. The magnitude of the contribution of the behavioural risk factors to the disease burden in Australia has recently been estimated, with tobacco smoking causing an estimated 10% of the disease burden in Australia, followed by physical inactivity (7%).10 The Internet, electronic commerce and information technology The Medicare system will be strongly affected by information technology and the Internet. At present, a depressingly large fraction of healthcare processes are still mediated by paper (medical records, prescriptions, appointments, bills and claims). According to Goldsmith,11 an eminent US healthcare forecaster and strategist, what the Internet promises healthcare managers and clinicians is a flexible information architecture that can reach down into the dozens, even hundreds, of healthcare information "silos" and extract, analyse, aggregate and redirect the data clinicians or managers require to make decisions. E-commerce also promises to reduce administration costs. Beyond clinical uses, promising Internet applications in healthcare include: Paperless transmission, assessment and payment of medical and hospital claims; Paperless prescribing of and payment for pharmaceutical items; Medical product ordering and inventory management; Outsourcing of data processing and other management functions; and Smart cards will permit the compiling and updating of standardised patient information using a common platform. The challenges in achieving such uses lie in standardising the coding and formats for clinical and health-related data and in standardising patient identification while protecting privacy. The National Health Information Management Advisory Council has developed a national plan of action for information management in the health sector.12 However, gaps in private sector representation on the Council need to be addressed urgently. Further, the Commonwealth must take the lead in legislatively mandating the development of such electronic standardisation requirements. This would accelerate progress to be made in efficiencies from e-commerce and from performance measurement across the health system. Rising consumer expectations As the post-war "baby boomers" become key healthcare consumers, they will demand more for themselves and for their frail, aged parents. Consumers have aggressively embraced the Internet to acquire health information. The Internet will also strengthen the role of consumers in their interactions with practitioners and healthcare institutions, and create a powerful new tool to help people manage their own health risks. These empowered consumers will demand better information to ensure quality and safety in healthcare. Consumerism will also foster a demand for a wide range of choice of new services and products, many of which will not be paid for by public Medicare. Medical advances, technological change and clinical practice Medical advances and new technologies are likely to continue to develop and will put pressure on cost growth. The Human Genome Project will dramatically alter healthcare. In an era of "individual medicine", genetic screening will identify health risks, and new treatments and precisely targeted pharmaceuticals will emerge. Advances will occur with bioengineered organs, organ transplantation, artificial skin and bones, methods of promoting and inhibiting angiogenesis, and new vaccines. Point-of-care testing, such as hand-held blood and saliva analysers, will move testing to the bedside, the clinic and the home. Telemonitoring in the home will alter demand for home health aides. Berwick envisages that, in the information age, medical practice will be a "knowledge producing" enterprise and not the "contact producing" enterprise of the last century.13 That knowledge will include the best evidence for diagnosis and treatments. There will be a greater focus on the development of standards of care, clinical guidelines and protocols, and on prevention, as well as ambulatory or home care. A greying Australia Compared with the uncertainties of other future impacts, the consequences of demographic change are more certain. The Australian Bureau of Statistics14 projects that the share of the population over age 65 will rise from 12.4% in 2001 to 18% in 2021 as the first wave of the "baby boomers" reaches 75 years. In 2021, the median age will be 40.4 years. Under current arrangements, the burden of increased future health costs would fall on the relatively diminished numbers of non-elderly. Combined with the increased burden of social security, the load may be too great. Governments will need to decide what core elements the tax-funded health system will cover. It is likely that some of the increased costs will have to be reallocated to the elderly. It is likely too that they will aim to protect their superannuated livelihoods through long term care insurance as they enjoy longer life expectancy. The ideal future financing model An ideal model for future healthcare financing is outlined in the Box. I have described this model in greater detail elsewhere.15Advocates for one single health funder, while largely driven by ideology, are campaigning for all health services to be funded through a government-run, single government payer system. Debate over whether government funding or private insurance constitutes the ideal financing model is reaching resolution in a number of overseas countries. The answer seems to be both. On average, private insurance pays about 10% of healthcare costs in OECD countries and is growing at a rate of 5%-7% a year. According to the report HealthCast 2010: smaller world, bigger expectations,16 these trends mean that most of the industrialised world will have both a strong publicly funded government health program and a private, market-based one. While acknowledging areas for improvement in both sectors, on balance the mixed public-private system works well in Australia and offers the best foundation for the future. This aspect of the overall framework of Medicare allows for choice by consumers, rather than the alternative of a totally government-controlled, nationalised health system. In addition, with proposals such as that of the Democrats for regional health authorities to pay medical practitioners on a capitation or salaried basis,17 it could be wise for medical practitioners themselves to have the option of another payer. Ideally, within the future Medicare framework, private health insurers should be able to offer their members a comprehensive range of health services, which should include, as a minimum, ambulatory medical services and inpatient services. This would extend the benefits of a mixed system to both consumers and medical practitioners. Footnotes* Brian Harradine, Independent Tasmanian Senator in Federal Parliament (from 1975 to the present). References Donelan K, Blendon RJ, Schoen C, et al. The cost of health system change: public discontent in five nations. Health Affairs 1999; 18(3): 206-216. Australian Institute of Health and Welfare. Australia's health services expenditure to 1997-98. Canberra: AIHW, 1999 (Health and Welfare Expenditure Series -- Health Expenditure Bulletin No. 15). Australian Institute of Health and Welfare. Australian hospital statistics 1997-98. Canberra: AIHW, 1999. (Health Services Series AIHW Catalogue No. HSE 6.) Tu HT, Kemper P, Wong HJ. Do HMOs make a difference? Use of health services. Inquiry 2000; 36(4): 400-410. Weinick RM, Cohen JW. Levelling the playing field: managed care enrolment and hospital use, 1987-1996. Health Affairs 2000; 19(3): 178-184. Australian Department of Health, Housing, Local Government and Community Services. Reform of private health insurance. A discussion paper. Canberra: AGPS, 1993. Private Health Insurance Administration Council. Quarterly statistics. March 2000. Canberra: PHIAC (May 14), 2000 <www.phiac.org.au> (accessed 7 June 2000). Industry Commission. Private health insurance. Canberra: AGPS, 1997. (Report No. 57.) Beazley K. Health insurance rebate. 4QR Radio: 09:00 News, 22 Feb, 2000. Mathers CD, Vos ET, Stevenson CE, Begg SJ. The Australian Burden of Disease Study: measuring the loss of health from diseases, injuries and risk factors. Med J Aust 2000; 172: 592-596. Goldsmith J. How will the Internet change our health system? Health Affairs 2000: 19(1): 148-156. National Health Information Management Advisory Council. Health Online: a health information action plan for Australia. Canberra: AusInfo, 1999 <www.health.gov.au/healthonline> (accessed 7 June 2000). Berwick D. Knowledge always on call. Modern Healthcare 1999; 29(39) Suppl: 2-4. Australian Bureau of Statistics. Population projections: 1997 to 2051. Canberra: ABS, 1998. (Catalogue No. 3222.0.) Cunningham FC. Medicare reform: via managed care or managed competition? Healthcover 1997; February-March: 8-16. PricewaterhouseCoopers. HealthCast 2010: smaller world, bigger expectations. Dallas, Tex: PricewaterhouseCoopers, 1999. Australian Democrats. Health reform: delivering a remedy. Canberra: Australian Democrats (April 17), 2000 <www.democrats.org.au/campaigns/health/> (accessed 7 June 2000). Authors' details Frances Cunningham is the Executive Director of the New South Wales Health Funds Association, and a member of the NSW Private Health Forum. She has a background as a healthcare consultant, health manager, health policy analyst and health services researcher. She was formerly Senior Policy Adviser to two NSW Ministers for Health, and a member of the NSW Senior Executive Service. She headed the Commonwealth Task Force which developed the discussion paper "Health maintenance organisations: a development program under Medicare" for former Federal Minister for Health, Dr Neal Blewett. NSW Health Funds Association, Sydney, NSW. Frances C Cunningham, ScD, Executive Director. Reprints: Dr F C Cunningham, NSW Health Funds Association, PO Box A2572, Sydney South, NSW 1235. francescATtpgi.com.au The views expressed are solely those of the author, and no endorsement by the NSW Health Funds Association is intended or should be inferred. Make a comment A future national health insurance porgram15 The objectives of a national insurance program should include: Universal coverage; A financially stable and viable program; Choice - and adequate information for Australians to make informed choices; and Comprehensiveness of coverage. Comprehensiveness of coverage will need to include: Better coverage for aged healthcare services; Access to quality healthcare; and Affordability for both those covered and those financing the program. Funding of the program should ensure: Macroeconomic efficiency - the costs of healthcare should not exceed an acceptable share of national resources; Microeconomic efficiency - the mix of services chosen should secure health outcomes and consumer satisfaction at minimum cost; and that Funding arrangements are transparent to the public. Financing mechanisms for Medicare will need to be reviewed: the levy, the tax regime, including relevant income-tax credits and debits, the Commonwealth-State grants arrangements; and the Australian Health Care Agreements. Other aspects of the model: Tax-based financing - an appropriate vehicle for those choosing public Medicare could be the existing Medicare levy (essentially an income-tax), although it should be adjusted on a sound actuarial basis to reflect the true health contribution, with an adjustment to financing from general income tax. Health insurance premiums - for those choosing to directly pay for private health insurance, premiums would be paid to health insurers. Financing for them could include a levy exemption or, if they did pay a levy, their risk-adjusted Medicare funds would flow on to the health insurer. Community rating would continue to apply to individual premium contributions. As at present, people would continue to contribute to social support through their general tax dollars. Ultimately, health insurance contributions should probably be a combination of employee and employer contributions, analogous to superannuation. The fringe benefits tax on employer contributions should be removed. Competition - under this model, strong competition would be possible between public and private health funders, both providing coverage for at least a standard comprehensive benefits package. Both sectors would be able to contract on a competitive basis for the most cost-effective quality providers, whether in the public or private sector. Back to text

Frances C Cunningham