The genuinely scary side of Medicare

We 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 ¾ privatisation ¾ we need to find a way to neutralise the toxic politics of health and make Australian healthcare truly agile and innovative.  Because treating Medicare as an untouchable sacred cow ¾ and turning our backs on more efficient private ways to provide healthcare ¾ 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 ¾ such as price signals and competition ¾ 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 means 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% of GDP.

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 ¾ 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 ¾ health management companies ¾ 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 ¾ average, indexed, per person government health expenditure, approximately $5000 today ¾ 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 a private alternative to Medicare.

Jeremy Sammut is a Senior Research Fellow and 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.