Detoxifying Medicare

In Spectator Australia last October, I wrote that those on the centre-right might one day regret the change of prime minister, given that Malcolm Turnbull’s ascent occurred on the back of the opinion poll-shaping attack campaign waged by the Left against Tony Abbott. I feared that a repeat of these tactics would see the Left exercise a power of political veto over any Coalition PM who did not measure up to its definition of social and economic progressivism. I also pointed out that market-based economic reform policies would be particularly vulnerable to a similar campaign against ‘conservative’ values.

These prognostications appear to be looking good now that the Mr Turnbull has run away from the subject of health reform, and promised that Medicare will never by privatised, in response to Bill Shorten’s union-backed ‘Medi-Scare’ campaign. Electoral realities have driven the Prime Minister’s response, and we should lament the politicking over health, which is a classic example of short-term political interest trumping the national interest in pursuing necessary and overdue reforms.

However, I would like to cut the Prime Minister some slack on health. All Turnbull has really done is update the approach adopted under the Howard Government, which liked to style itself as ‘Medicare’s best friend’.  John Howard recognised that the threat the Coalition was seen to pose to Medicare under John Hewson’s ‘Fight Back’ plan was a major reason for the loss of the ‘unloseable’ election in 1993.

The Coalition’s acquiescence on health is reminiscent of the situation in Britain. Enoch Powell was the intellectual godfather of what became the Thatcher-ite revolution that de-nationalised state-run industry. Yet both Powell and Thatcher were content to leave the socialist National Health System untouched by reform because they considered the question of health a closed one politically on which the British people had spoken in favour of the status quo.

The salient lesson of all of this in relation to economic reform seems to be that while returning the commanding heights of the economy into private hand involves political challenges, there are greater political challenges in relation health reform. Every voter has a stake in the future of taxpayer-funded health systems, and Medicare therefore has the ability to determine which party does and does not govern.

I do not like these political realities – but I am being a realist. This is also to say that we need a new paradigm when thinking about health reform, and it isn’t enough to simply say we should go back to the good old days of the 1980s when both sides of politics agreed about the need for reform.

There is not going to be any bipartisan agreement about health reform in the foreseeable future. So if those on the centre-right want to achieve change they are going to have to come up with a viable political strategy and will need to find a way to neutralise the otherwise toxic politics of health.

We know that, given the ageing of the population and the impact of new technology on healthcare demand and use, health systems like Medicare will become increasingly unaffordable in coming decades. But we can’t simply make health reform all about cuts to spending and budget savings – this is the great lesson of the Abbott Government’s GP co-payment disaster.

The lesson was not necessarily that the electorate wants to keep Medicare because it believes the system is fair and equitable and that a ‘free and universal’ health system is the centrepiece of the Australian social compact. This is the propaganda of the public health lobby. To the contrary, the real message sent by the electorate was driven by the hip-pocket nerve. Many Australians were simply unwilling to pay $5 to see the doctor because they feel they already pay enough tax, and Medicare was one of the few ways they get their taxes back.

The depth of this entirely understandable sentiment within the community – and especially within the net-tax paying constituency of the Coalition – represents an opportunity to implement a creative political and policy solution for the health puzzle.

What if we simply gave Australians a choice between Medicare and an alternative system? What if we did indeed allow people to choose to take their own taxes back and have control of their own health dollars to self-fund their own health care? Just like people are allowed to opt for private schools for their children through government funding for non-government schools, government policy should also enable them to opt for private health if they so wish.

What we should do is let people opt-out of Medicare.  Ordinary Australians simply do not understand how much of their taxes are locked up in Medicare. Average, per-person government health spending in Australia is near enough to $5000 per annum.

Individuals should be allowed to cash-out these Medicare entitlements on annual, indexed basis, and deposit the proceeds in a health savings account. These accounts would be linked to the individual’s superannuation accounts, but money could be withdrawn prior to retirement to pay for lower-cost health services and to pay for private health insurance to fund higher-cost services.

Because people would be spending their own money on health there would be less waste on ‘free’ services and other inefficiencies latent within a government-run system. Because health savings accounts and superannuation accounts would be merged upon retirement, individuals would also have an additional incentive to be cost-conscious consumers of healthcare.

Any ‘health savings’ generated over their working lives could be used to pay for either old age health costs or to increase retirement incomes. This is to say – and this is the great political selling point and strategic advantage – that individuals will personally benefit financially from this type of choice-based health reform.

Medicare opt-outs would, dare I say it, be truly innovative and agile health policy – and politically smart. Giving people a choice about health would limit the effectiveness of ‘Medi-Scares’ because Medicare would remain in place for those who want it. At the same time, there would be an attractive alternative on offer for a considerable political constituency that would be interested in having a financially rewarding way to pay for their own health care.

Jeremy Sammut is a Senior Research Fellow and the Director the Health Innovations Program at The Centre for Independent Studies.