Medicare co-payments – Has Tony Abbott closed Australia for (private health insurance) business?

In this first of a series of posts about Medicare, Margaret Faux notes that the Abbott Federal Government appears to be trying to gain some traction from former Labor Prime Minister Bob Hawke’s introduction of co-payments. But she says, more can be garnered from considering why they were not introduced by John Howard.

Faux is a lawyer, the founder and managing director of one of the largest medical billing companies in Australia and a registered nurse. She has been involved in Medicare claiming for 30 years and is a research scholar at the University of Technology Sydney examining the interface between Medicare and medical practitioners.

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Margaret Faux writes:

The Liberal Party has always been the strongest advocate of private sector involvement in all aspects of Australian life. But while Tony Abbot may have had the best of intentions when he declared Australia open for business, within a year he may have pulled down the shutter on private health insurers.

History has taught us that it is risky business to subject health policy to the blunt instruments of macroeconomic reform. Australians have seen co-payments under two previous governments, both unsuccessful, and on one occasion they represented a tipping point that sent a handful of private health insurers to the wall.

Facts may also have been sacrificed in this debate as the Health Minister has readily mentioned Bob Hawke’s introduction of co-payments, but has failed to mention his own parties’ co-payment history. In an interview on 2UE on 2 June 2014 he said:

‘Well, we’re happy to give credit where it’s due and Bob Hawke came up with the idea of a co-payment…..’

In fact, it was the Liberal Party who first came up with the idea of co-payments in Australia.

Bob Hawke introduced co-payments in November 1991, Paul Keating repealed them three months later; they  came and went without causing much of a ripple and there is little that can be gleaned from the experience. In contrast the Liberal Party’s co-payment initiatives between 1976 and 1981 were sustained, amended more than once and contributed to the eventual collapse of Australia’s first national health insurance scheme, Medibank.

Medibank commenced on 1 July 1975 under Gough Whitlam and the Medicare scheme introduced almost a decade later under Bob Hawke was Gough Whitlam’s original scheme with little more than a name change. It is the Health Insurance Act 1973, introduced under Whitlam, which was and remains the enabling legislation for both Medibank and its successor Medicare.

Just a few months after Medibank was introduced the Whitlam government was dismissed and before long Australia’s first experiences with co-payments began.  Malcolm Fraser promised to retain Medibank and historical records indicate this intention was genuine, however between 1976 and 1981 his party introduced Medibank marks II, III and IV before the scheme was finally abandoned completely in April 1981. In the relevant editions of the Medical Benefits Schedule book during this period, co-payments were referred to variously as ‘the maximum payment by a patient for each medical service’, ‘a maximum patient moiety’ and ‘a $20 maximum gap’.

By the time Medibank mark IV was introduced in 1979, the combined effect of various policy initiatives aimed at stabilising the health system (including the $20 co-payment) were a tipping point which led to the rapid downward spiral of the private health sector.

When Australians realised they were paying for both private insurance as well as contributing substantially to GP visits, many chose to drop their private cover. In fact very quickly, private health insurance membership dropped to its lowest point in the preceding decade which in turn caused private insurance premiums to rise.

The continuing exodus from private cover included high numbers of young, healthy, low risk individuals which left the private insurers struggling to survive with an older, sicker, higher risk population costing more to insure. Three private health insurance funds folded completely and others were on the verge of collapse [1]. This was a problem for the Fraser Government as the net impact of its health reforms was clearly inconsistent with its objective of boosting the private sector and being ‘open for business’.

Many years later, a Liberal Party backbencher, Michael Wooldridge, was completing a Masters degree examining the Fraser government’s handling of health policy, his thesis being ‘highly critical of the subordination of health policy to the vagaries of macro-economic policy.’[2] In March 1996 Wooldridge commenced a five year period as Health Minister and it was perhaps his understanding of the dangers of subjecting health policy to macroeconomics that may provide some answers to the question of why John Howard chose not to introduce co-payments during 11 years in office.

The question of whether the private health sector collapse of the late 70s could be repeated today is a moot point. The tipping point for modern Australians will be driven by different considerations to those that existed in 1979. However, if you consider a young Australian earning $60,000 per annum, who will soon pay an annual Medicare levy of $1,200 (the Medicare levy will increase to 2 per cent next week to cover the National Disability Insurance Scheme). Then add 5 trips to the GP each year and assume that each will incur an average out-of-pocket expense of $15 ($7 co-payment for the GP, plus $6 for a prescription and/or another $7 co-payment for an x-ray, ultrasound or other test), that’s another $75 per year representing a total of about $1,300 per annum.

A review of the websites of the major private health funds indicates that if you’re a young, fit, healthy individual you’ll currently be paying about $30 per week for private cover or $1,500 per year. The total of the two amounts is almost $3,000 per annum or 5 per cent of your income. For a young, low risk individual who would more than likely be treated in the public system if they were seriously ill or injured, the combined effect of the increased Medicare levy and the introduction of co-payments may well see this group being the first to drop their private cover.

In an interview in 2001 Michael Wooldridge, then Health Minister said:

‘When you have a system that actually works pretty well, that the public likes, that delivers universal care for 8.5 per cent of GDP, encourages private sector funding, offers substantial choice, and has successfully implemented cost containment policies, why would you even want to change?’[3]

Thirteen years later and Australia’s health spending percentage of GDP has only risen by half a percent to approximately 9 per cent, which remains below the OECD average, on par with the UK  and well below the US, which spends approximately double.

Despite the fact that medical services expenditure is increasing, there is no evidence of a health spending crisis and a responsible government will use the time we have (and we have time) to consider visionary ways to develop a sustainable health care system. Meaningful reform of Medicare must be driven by research rather than by ideas and ideology that may well close Australia’s doors for business, before the first customers have arrived.