Bring back Medicare co-payment

The Treasury’s Mid Year Economic and Fiscal Outlook has revealed that next year’s $47 billion federal budget deficit will be at least 50% bigger than the $30 billion deficit forecast when the Abbott government took office three months ago.

The deteriorating fiscal climate means that the Coalition’s pre-election promise to quarantine the $60 billion the Commonwealth currently spends each year on Medicare from any expenditure cuts makes neither financial nor policy sense.

The Treasurer, Joe Hockey, said as much at the National Press Club last week. Hockey argued that Australians need to adjust their expectations about what government can provide. He also noted that spending reform would have to occur in areas of highest projected expenditure growth including welfare, education, and health.

The Treasurer’s move to put health cuts on the political agenda is overdue.

Rapidly rising health outlays over the last decade have made the single largest contribution to growth in federal government expenditure, with the Commonwealth now spending over double the amount on Medicare than in 2001-02.

With health-related budget pressures set to rapidly increase as the population ages, action must be taken now to rein in spending across the whole of government.

Clearly, we can no longer afford to ring-fence health. Scrapping or modifying just three wasteful and ineffective health programs can cut the budget deficit by almost $3 billion and contribute to getting the budget back in the black.

In 2005, the Howard government established Medicare rebates for GP Management Plans which allow doctors to refer patients with chronic conditions to Medicare-funded allied health services. The initial estimated cost of $60 million has blown out to over $700 million due to rorting of the program by providers and consumers.

GP Management Plans are highly lucrative for GP practices whose business model involves referring set numbers of patients per week regardless of clinical need. According to Tony Webber, the former head of the Professional Services Review, podiatrists, physiotherapists and other allied health professionals boost their incomes at taxpayer’s expense by encouraging non-chronically ill consumers to pressure doctors to provide a management plan in order to receive ‘free’ treatment.

An equally wasteful program is the Better Access to Mental Health Services scheme which provides Medicare-funded access to psychological services for patients with short-term mental disorders.

A 2011 evaluation showed that the main effect of this untargeted scheme has been to exacerbate social and regional inequalities in mental health service provision, and create what experts describe as a new form of middle class welfare. Those living in already well-serviced and high-income metropolitan suburbs make disproportionate use of the scheme compared to those in traditionally under-serviced remote and socially disadvantaged areas.

The $600 million a year scheme (five times the initial estimated cost) has transferred the cost of psychological counselling from consumers who could afford to pay for their own treatment to taxpayers. It has also maximised the income of psychologists who claim Better Access rebates while charging well-off patients an additional out-of-pocket fee.

The high growth in the cost of both programs identifies the core problem with the ever-increasing cost of Medicare – highly-subsidised healthcare encourages overuse of services, particularly when these services are consumed without any direct charge to patients.

The need to charge a copayment to curb growth in the cost of bulk-billed Medicare services was recognised by the Hawke government in 1991, when a $2.50 copayment for GP visits was introduced. The copayment regime (which the Coalition supported) lasted three months and was only scrapped when Paul Keating became Prime Minister in return for the support of the Labor Left in the leadership tussle against Bob Hawke.

The copayment in today’s money would be $4.26 – less than the cost of a hamburger. Reintroducing a copayment of $5 is not unreasonable, nor is extending the range of services it applies to, given that technological change and increased availability has led to huge per capita growth in the use of bulk-billed pathology, diagnostic imaging, and other investigatory services.

A $5 copayment, combined with corresponding $5 reduction in Medicare rebates, would save the federal government at least $1.4 billion each year, but the savings are likely to be higher due to the impact on over-use.

Introducing a copayment would start the process of restraining the health spending leviathan. But if long-term budget challenges are to be met, more fundamental reforms will be necessary. Options such as health savings account system (modelled on the superannuation system) need to be considered to shift health costs of government and make greater use of private sources of health care financing.

Jeremy Sammut is a Research Fellow at The Centre for Independent Studies and co-author of Emergency Budget Repair Kit: In Case of Emergency, Cut Spending.