Prime Minister Tony Abbott’s former health adviser Terry Barnes appears to have the ear of the Federal Government, with his proposal for a $6 GP visit co-payment looking likely to be part of the May Budget.
But he’s clearly been stung by criticism of the proposal by public health advocates, as shown in these recent tweets (above) attacking “self righteous” public health experts for waging class warfare with “regressive” tax plans.
A health policy analyst, writing under a pen-name, responds to Barnes’ analysis below and, in a second post, sees potential in the 2011 National Health Reform Agreement for cutting federal health care spending without having to resort to measures like the co-payment.
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“William Foggin” writes:
Power is clearly going to Terry Barnes’ head. Having raised the GP co-payment option which is set to be endorsed in the budget, he is now tweeting on public health:
“Public health lobby’s obsession with fat taxes, highet [sic] alcohol and tobacco excise way more regressive than my GP BB copayment proposal”.
As ever, Terry is missing a few points here. The most significant is that consumption of “fat food”, alcohol and tobacco are entirely discretionary. There are healthy and cheap alternatives to “fat food”, while alcohol and tobacco are not necessary at all. Taxes on these goods are really voluntary contributions to general revenue.
On the other hand, attendance at a GP when one is sick is necessary. And there is an overwhelming mass of evidence to suggest that poor people in general have worse health than those on higher incomes, and older people (with lower incomes) have worse health than younger people. A flat rate tax on a non-discretionary service that lower income people need to use more than wealthier people: that is regressive.
Many advocates of increased alcohol taxation quite rightly point to the discrepancies in the current system. Among these is that alcohol contained in beer is taxed more heavily than alcohol contained in wine. I should declare that I like a glass of wine (as does Terry, and we have even shared a bottle or two before now). However, I can’t justify paying less tax on the alcohol it contains than my son pays on the equivalent amount of alcohol in his beer.
In an article in the Medical Journal of Australia last year, Doren et al modelled a number of scenarios for reforms to alcohol taxation, including replacing the Wine Equalisation Tax with a volumetric tax set at the rate of low strength beer. They concluded that this “most politically feasible” option would raise an additional $1.3 billion in revenue and avoid over $800 million in health care costs annually.
By contrast, Terry estimated his flawed co-payment proposal would save a total $750 million over four years.
If he really cares about the budget deficit and the sustainability of the health care system he should be an enthusiastic proponent of alcohol taxation reform, not a critic.
Perhaps Terry has been talking to Greg Hunt, and will be proposing a direct action approach to reducing harm from fat foods, alcohol and tobacco. Instead of taxing these products to reduce consumption, the government should pay people to eat more healthily and drink and smoke less…
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Money for old rope: the National Health Reform Agreement
As the Abbott Government searches for the health funding cuts its leader ruled out the day before the 2013 election, it could do worse than revisit the National Health Reform Agreement (NHRA) signed in August 2011.
That Agreement was the Gillard-lite version of the far more grandiose National Health and Hospitals Network Agreement, concluded in April 2010 after the most bizarre two day COAG meeting in history. Having secured kitchen Cabinet agreement to a funding envelope to persuade the states to sign, Prime Minister Kevin Rudd was determined to spend it. In reality most Premiers would have signed a day earlier and for less money if only the Prime Minister had stopped talking.
The main features of the 2010 Agreement were that the Commonwealth would pay 60 per cent of the efficient cost of public hospital services on an activity basis, with the initial cost of that largesse offset by a redirection of 30 per cent of GST to hospital funding. But after two years the GST offset would be frozen, and the Commonwealth would pay 60 per cent of growth in costs after that.
The states and territories wanted to know how much more the Commonwealth was going to pay, and Mr Rudd was keen to tell the public. The Commonwealth Treasury came up with an estimate of $15.6 billion over the six years from 2014-15, based on the long term trend in growth in hospital expenditure continuing into the future. The states then demanded that the Commonwealth guarantee that amount in the Agreement, which it duly did.
While the guarantee persuaded seven states and territories to sign, Western Australia remained recalcitrant. And after an election and a change of government, Victoria indicated it did not support the GST hypothecation which underpinned the Agreement. So it was back to the drawing board, with a new heads of agreement in February 2011 leading to the NHRA in August 2011.
The Commonwealth currently meets about 35 per cent of the cost of the public hospital system. Under the NHRA it will pay an increasing share of the costs of public hospital services on an activity basis. This will be achieved by paying for 45 per cent of growth in the efficient cost for the three years from 2014-15, and 50 per cent of growth starting in 2017-18.
The Commonwealth Treasury estimated that the new arrangements would provide the states and territories with $16.4 billion more over the six years from 2014-15 than they would have received under the pre-existing arrangements. This amount was then guaranteed in the NHRA (and each state and territory was guaranteed a per capita share of $9.5 billion).
There is a lot to be said for the Commonwealth linking its funding to actual activity and efficient prices, as it is the best measure of the need for funding. No indexation parameters can accurately measure the changing demand for and price of services. Paying for what actually happens, using a price set by the Independent Hospital Pricing Authority, links the Commonwealth’s contribution to the costs faced by hospitals.
Under the NHRA the Commonwealth will pay its share of the efficient cost of every service provided by a public hospital. The states and territories then meet the balance of the cost.
So as service volumes increase, the Commonwealth will pay more in aggregate. But the guarantee means that the converse does not apply: if states can reduce service volumes – at the expense of longer waiting lists and waiting times – they will save their own money, while still receiving the Commonwealth guaranteed payments.
Indeed, while the states and territories are guaranteed an additional $16.4 billion over six years, there is no guarantee that a single additional hospital service will be provided. In fact, Treasury modelling of the $16.4 billion was based on a continuation of existing growth trends, and implicitly assumed that no additional services would be provided.
The previous government explained the NHRA in terms of the federal government making a contribution to every public hospital service that the states and territories provided.
The Abbott government needs to ensure that the additional funding is only contributed to the states and territories when public hospital services are provided, and not otherwise.
If it does, of course, the states will wax lyrical about the injustice that has been done to them: anybody seeing the prospect of free money removed would. But they should not be believed.
• “William Foggin” is the pen-name of a health policy analyst who wishes to remain anonymous.
