The Genuinely Scary Side of Medicare

medical waste IIWe all understand why Prime Minister Malcolm Turnbull has tried to neutralise Labor’s scare campaign by promising Medicare will never be privatised.  But the politicking over health is a classic example of short-term electoral interest trumping the national interest in pursuing reforms that will make the nation healthier and wealthier.

Instead of running scared of the P-word, ” privatisation”, we need to neutralise the toxic politics of health and make Australian healthcare truly agile and innovative  Because treating Medicare as an untouchable sacred cow — and turning our backs on more efficient private ways to provide healthcare — will have negative long-term consequences. Government health expenditure is continuing to grow faster than national income due to population ageing, population growth, increased use of services, and new technology. If this continues, we face either higher taxes or higher budget deficits and debt, or both. Rising health costs won’t only make it harder for governments to afford the health services the community needs. It will also make it more difficult for to pay for all the other things voters want, including hot-button electoral issues such as schools, transport and childcare.

Approximately 70% of the $105 billion that governments currently spend on health is locked up in the Medical Benefits Scheme, Pharmaceutical Benefits Scheme, and ‘free’ public hospital care. All three are basically provider-captured payment mechanisms that guarantee doctors’ incomes, prop up the business model of pharmacists, and underwrite the wages and conditions of public sector health workers.

Lack of market forces — such as price signals and competition — encourages over-use of health services, and also permits legions of inefficient practices to persist, especially in coddled pharmacies and public hospitals. Waste and inefficiency mean we spend more on health than we should, and for no good outcomes in terms of improved health per additional dollar spent. Singapore’s more market-based health system delivers comparable health outcomes to Australia at a fraction of the cost, spending just 4% of total GDP on health compared to Australia’s 10%.

Endlessly pouring increasing amounts of national income into Medicare won’t necessarily make us healthier. But it will undoubtedly make us all poorer, as Medicare picks the pockets of all Australians who could otherwise spend that money on other things.

The rigid Medicare framework will also keep us wedded to a high-cost structure health system by preventing alternative ways of treating patients that would deliver the right kind of care in the most cost-effective way. Australia has high rates of hospital use compared to comparable OECD countries. There are also significant gaps in the primary care system for treating chronic illness. Many chronic patients need more than just the GP, and other medical services that Medicare mainly offers, to stay well and avoid expensive hospital visits. Many procedures performed in hospitals could also be performed at lower cost in community-based clinics.

Private health funds are grappling with these issues: the challenges of rising rates of chronic illness and increasing use of hospital services that are driving up costs and premiums, and threatening the affordability of private health insurance. This is why many health funds are showing interest in having a greater say in purchasing the appropriate services for their members so as to bend the cost, demand and use curves downward.

In the solution to these problems lies the future of healthcare sustainability. We need new players to enter the market — health management companies — that can manage the care of patients effectively and efficiently, and prevent unnecessary use of hospitals by ensuring better and less-expensive care options are available.

The strategy we should embrace is ‘competitive neutrality’: allowing the private sector to compete with Medicare on a level playing field.

What if we gave people a choice and let them opt out of Medicare? Individuals could cash-out their Medicare entitlements and deposit the proceeds — average, indexed, per person government health expenditure, approximately $5000 today — in a Health Savings Account (as is done in the lower-cost and more efficient Singaporean health system). The money in health savings accounts would be used to self-fund lower-cost health services and to pay for private health insurance to fund higher-cost services.

Releasing the shackles of the Medicare system would represent the great disruption that would allow the proverbial 1000 entrepreneurial, health management start-ups to bloom and discover the best and most cost-effective way to deliver healthcare.

Advocates of the public health system who constantly tell us a private health system would be much worse than Medicare should no longer be allow to put our money where their mouths are. If they truly believe that public is best, they should let us test that proposition in the market by allowing Australians to choose private alternatives to Medicare.

Jeremy Sammut is the Director the Health Innovations Program at The Centre for Independent Studies. His latest report is Medi-value: health insurance and service innovation in Australia –  implications for the future of medicare

  • Solo

    Medicare is a sacred cow. Look at the reaction if anyone says Medicare and cos’ in the same sentence. Outraged screeching follows.

    We can’t seem to have a sensible discussion about this, especially after the shenanigans Labor pulled in the election. Medicare is practically cemented as a hole without a bottom and no amount of taxpayer funds will fill it.

    • Jody

      Well, Medicare is a ‘cow’ anyhow; whether or not it’s ‘sacred’ is moot. (Interesting that ‘sacred’ is itself an anagram of ‘scared’!!)

  • jonreinertsen@bigpond.com

    Jezza me old mate, I had three hospital admissions last year. (yes I am a grumpy old man.) I have top table and all the extras, (and if I change it I have to suffer waiting times of up to a year) yet I got charged for every blood test. Spent $700 on them, and got back diddly squat. Even had to pay for a consultant visit I can’t remember. The system is broken, and when we pay doctors a retention bonus of between $5000 and $100,000 a year! Where the hell do we think they are going to go? Private practice?

    • Jody

      I find this very alarming. Having had mercifully few experiences with the ‘health system’ in hospitals to date, save for the occasional routine elective tests etc., I am forming the view that doctors’ fees reflect the scale of private health insurance for each patient. The first question I get is “do you have private insurance”? When I answer in the affirmative I’m immediately booked into the local private for these infrequent tests, but have only been side-swiped once by the anaesthetist. I always get the feeling that the charges are higher when it’s private health insurance – the gap is there, but is higher for the private patient. Consequently, we are more out-of-pocket IMO. My husband and I pay a staggering $5,500 per annum in private health insurance and I don’t expect to pay further significant out-of-pocket charges, especially when I cannot claim on anything (except for ‘ancillaries’) outside hospital. What a rort!!

      My nephew is a regional area GP and he says, “being a doctor is a licence to print money”.

  • denandsel@optusnet.com.au

    We need more articles like this please Jeremy, and preferably in the MSM. If possible I would like somebody from the C.I.S or the I.P.A to do a more detailed study of the costs of government owned/controlled industries/services as compared to those provided by private enterprise, and to then give them to the LNP about 1 year before the next election. To quote Michael Keane – Nothing is more expensive than something that is ‘free’.
    My thoughts are that EVERYTHING produced by government is more expensive and of poorer quality. Take one example – motor cars. Motors cars were once an expensive luxury, costing many years of wages of/for the average working man/woman. Thanks to private enterprise motor cars are no longer a luxury but are an essential part of life for civilised people and cost a fraction of what they once cost in relative terms. The government produced ‘Trabant’ in East Germany was the most notorious vehicle world wide for being of poor quality, smelly, and in-efficient, but not because the Germans were poor engineers [Mercedes, VW, BMW etc. proves otherwise] but because they were government owned/controlled. Trabants are now even a tourist attraction in the bigger cities in some parts of Eastern Europe.
    To my mind government inefficiency applies to most goods and services. Those goods and activities controlled/made by government have NEVER got cheaper over time, this is seen in health services [as in your article above], education and legal services. All those government controlled /owned things have remained expensive or have got relatively dearer, think of water. electricity/power etc. Most services provided by private enterprise have become much cheaper over time. Think of computers, white goods, food etc. I am sure that you and others could provide much more accurate figures for the costs of many more items than my memory can recall.
    I’ll finish by quoting a statement I once saw on U-tube made by Thomas Sowell [my favourite living American economist/philosopher] – “It was Thomas Edison who brought us light, not the greens [Sierra Club], it was the Wright brothers who got humans off the ground not some government aviation bureaucrat, it was Henry Ford who made motor cars affordable and safe not Ralph Nader. Those who help the poor the most are not those who loudly proclaim their compassion but are those who invent things and innovate so that the poor of today are far richer than the rich of yesterday.

    • Lawrie Ayres

      Maybe Bill Shorten should read this. Then again it would mean less union control so do not expect too much from the alternative PM.

  • whitelaughter

    No matter how you fund it, every suggestion has been: pay public servants to give doctors money – and ignores that we pay others to tax doctors.
    Rather than this pointless fiscal churn, reduce both medicare and the tax rate on doctors dollar-for-dollar until they either don’t pay tax or don’t get medicare funds; either way, half the clerical work (both for the federal govt and for the doctors) is abolished.
    Assuming that this doesn’t abolish medicare, declare surgeries, medical centres etc to be federal institutions – which means that they don’t have to pay rates/land tax etc to local govts. Again, deletes unneeded paperwork.

    Finally, to stop the endless miles of forms that doctors have to fill in: give them the right to *bill* for their time any bureaucracy that send them paperwork. At their current market rate. Watch the forms rapidly disappear!

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