Australian Health Care — The Challenge of Reform in a Fragmented System
By Jane Hall, Ph.D.
The New England Journal of Medicine, August 6, 2015
The Australian health care system appears remarkably successful in delivering good health outcomes with reasonable cost control. Australians enjoy one of the longest life expectancies and a long healthy life expectancy, while costs as a proportion of the gross domestic product remain around the median among countries in the Organization for Economic Cooperation and Development (OECD). Universal, tax-financed comprehensive health insurance, Australian Medicare, has been largely stable for three decades. Yet this performance has been achieved through, or despite, the interplay of public and private financing, public and private service provision, and a division of responsibilities between the federal and state governments. The main political parties clash over the role of government and whether national health insurance in its current form should continue.
Australian Medicare was established in 1984, after a period of tumultuous change. Australia has moved through numerous approaches to health care financing: private insurance with public subsidies (pre-1974), publicly financed national universal health insurance (Medibank, 1974–1976), predominantly private insurance with public subsidies (1976–1984), publicly financed national universal health insurance (Medicare, 1984–1996), publicly financed national universal health insurance with publicly subsidized private health insurance (1996–2013), and publicly financed national universal health insurance with means testing for private insurance subsidies (2013 to present). The rationale for government subsidies for private insurers alongside a public universal insurance scheme has never seemed clear; perhaps it is best seen as the compromise between the “strife of interests masquerading as a conflict of principles” that, according to health planner Sidney Sax, characterizes the Australian system.
Another strife of interests afflicts intergovernment relationships. There are six states and two territories (hereafter all referred to as states), each of which retains its own government and the responsibility for public health and health care. The national government, the Commonwealth of Australia, holds the major revenue-raising powers, so states rely on financial transfers to provide services. The states operate public hospitals (which account for about two thirds of all hospitalizations and provide emergency department visits without charge), though funding them is a joint responsibility of both levels of government. The Commonwealth has responsibility for paying benefits through Medicare (for out-of-hospital medical care and in-hospital private medical services) and for the Pharmaceutical Benefits Scheme (covering most prescribed drugs), but funding arrangements for other services often involve both levels of government. The result is a complex set of overlapping and fragmented responsibilities.
A recent review concluded that “the complex split of government roles means no single level of government has all the policy levers needed to ensure a cohesive health system” and that the people who suffer the most from the lack of coordination are “patients with chronic and complex conditions, such as diabetes, cancer and mental illness, who regularly move from one health service to another.”
A change in national government in 2013 prompted substantial revision of many aspects of reform. In primary care, Medicare Locals were disbanded, and on July 1, 2015, they were replaced by 31 Primary Health Networks. The call for applications to establish these networks emphasized the eligibility of various organizations, including private health insurance funds, as contractors. The successful bids came mainly from consortia of Medicare Locals, some of them including insurers as partners. The networks may yet develop the potential to become purchasers and thereby provide impetus for integrated care, but given the challenge of setting up new entities, that transformation remains aspirational.
The new government has also reversed the agreement that provided additional Commonwealth funding to public hospitals on the basis of efficient cost increases and volume growth. Beginning in July 2017, the Commonwealth’s additional contributions will be based only on population growth and inflation. This change presents a major challenge for states, whose public-hospital expenditure is a major budgetary commitment that isn’t matched by revenue-raising capability. It will therefore severely limit states’ flexibility in funding other programs, such as education and transportation, and in developing innovative health programs that might improve care integration and coordination.
An underlying concern is the extent to which the Commonwealth government intends to reduce its share of health care expenditure. In 2014, it attempted to reduce its outlays on Medicare by imposing patient copayments for GP visits — a tactic that was eventually dropped in the face of concerted opposition. But other cost-reduction avenues remain open, and recent announcements have, for example, targeted the cost of pharmaceuticals. Since 2002, the Commonwealth has produced a series of Intergenerational Reports predicting what government expenditures will be over the next 40 years if current policies remain in place. These reports show significant increases in health care spending, but they focus on the Commonwealth budget rather than the entire health sector. If reducing Commonwealth expenditures remains the primary objective for the health portfolio, it could lead to further fragmentation of care and missed opportunities for developing a coherent and efficient health system.
Australian Government White Paper on Health Reforrm, December 2014: https://federation.dpmc.gov.au/sites/default/files/issues-paper/Health_Issues_Paper.pdf
The company began business as an Australian government-owned private health insurer, established by the Whitlam Government in 1975 through the Health Insurance Commission (now known as Medicare Australia). It is Australia’s largest health insurance provider with 3.6 million members, 30% of the market, under two brands.
Medibank was set up to provide competition to private “for-profit” health funds. Although government owned, the fund has operated as a government business enterprise since 2009, operating as a fully commercialised business paying tax and dividends under the same regulatory regime as do all other registered private health funds. Highly regulated regarding the premiums it can set, the fund was designed to put pressure on other health funds to keep premiums at a reasonable level. In 2006, the Coalition Howard Government announced that Medibank would be sold in a public float if it won the 2007 election, however they were defeated by the Australian Labor Party under Kevin Rudd which had already pledged that it would remain in government ownership. Liberal leader Tony Abbott made the same pledge to privatize Medibank if it won the 2010 election but was again defeated by Labor. Privatisation was again Liberal party policy at the 2013 election, which the Coalition won. On 26 March 2014 Minister for Finance Mathias Cormann announced that Medibank would be sold through an initial public offering in the 2014-2015 financial year. The sale was completed with 100% of the company sold, listing on the Australian Stock Exchange under the code MPL on 25 November 2014, with 440,000 individual owners with a market capitalisation of A$5.921 billion.
By Don McCanne, MD
Probably the greatest problem with government financed and government administered health care systems is that, whenever conservatives gain control of the government, they attempt to privatize the systems, believing that markets work better than the government. Currently we are seeing such efforts in England, Canada and Australia.
As today’s message demonstrates, Australia serves as a prime example of how the health care systems suffer under continuing shifts in political ideology, with the most damage being done under conservative rule. As their government leadership changes periodically, “Australia has moved through numerous approaches to health care financing.”
Jane Hall, the author of the NEJM article above, writes, “The rationale for government subsidies for private insurers alongside a public universal insurance scheme has never seemed clear; perhaps it is best seen as the compromise between the ‘strife of interests masquerading as a conflict of principles’ that, according to health planner Sidney Sax, characterizes the Australian system.”
Thus Australia has ended up with a highly fragmented system, though shifting political winds make it likely that they have not seen the last change. (More information is available in the white paper produced by the current conservative Australian government – link above.)
One interesting observation in the NEJM article (which is available for free at the link above) is the contrast between the public and private sectors in delivering health care. An example is that “42% of private deliveries (unadjusted for risk factors) are caesareans, versus 29% of public deliveries.” Their private sector seems to have much in common with our medical-industrial complex.
Many single payer supporters in the United States continue to advocate for a “public option” – a government-run insurance that competes with the private plans – as an incremental step towards a universal single payer system. Australia’s Medibank began as such a program in 1975. The Wikipedia chronicle (above) of the history of Medibank reveals that it has transformed into the largest, private, shareholder owned insurance company in their nation. Although our efforts at establishing a public option never got off the ground, before the effort was abandoned, the concept had already evolved away from an expansion of Medicare into simply another player in the private insurance market, government in name only.
Our health care politics have much in common with Australia, and we both have fragmented health systems as a result. Our public Medicare program has already been partially privatized by using overpayments of taxpayer dollars to lure Medicare beneficiaries into the private Medicare Advantage plans. The conservatives are not through in that they want to shift the entire program into the private sector by use of “premium support” vouchers. Of course, the expansion of private insurance plans also perpetuates fragmentation, though currently efforts are being made to convert the insurers into private oligopolies – perhaps the worst model of health care reform that we could have.
So who ultimately controls the ideological complexion of the government? The voters, of course. That is why it is crucial that we continue to educate the public on single payer – an improved Medicare for all – contrasting it with the more dysfunctional models, with our present system being a prime example of dysfunction. The people can have a much better health care system, but they are going to have to understand what that is so that they will demand it of our politicians.