Reforming Medicare to show voters value for money

The 2016 election campaign has proven one thing for certain. The political class thinks that the only issue that matters in health is the different amounts of money that Labor and the Coalition are willing to pour into Medicare, regardless of the fact that public health spending is already growing faster than the economy each year.

The missing element is that even higher health spending above the rate of economic growth won’t necessarily make us healthier, but will undoubtedly make us poorer. If we don’t get on top of the fiscal challenges, rising health costs will limit the private and public resources available to pay for other needs and wants.

The costs of health to individuals, and the potential financial benefits of reform, need to be the focus of the discussion about the future of the health system.

But ever since the ill-fated announcement of the GP co-payment as part of the 2014 Budget, the health debate has been bogged down in a political war between ‘‘beltway’’ insiders pitting the AMA against the federal government and assorted critics of the medical profession’s financially self-serving advocacy.

Medicare basically operates as a set of payment and funding mechanisms that guarantee doctors’ incomes, prop up the business models of pharmacists, and protect the wages and conditions of public hospital doctors and nurses.

But making the health debate all about the ‘‘rents’’ generated by ‘‘vested interests’’ is getting us nowhere fast.

I was – and remain – a strong proponent of a GP co-payment.

But stepping back from the fray, what strikes me is the quantity of political energy consumed by arguing over policies (including the MBS rebate freeze) that, in relative terms, are ‘‘nickel and dime’’ issues compared to the tens-of-billons of dollars Australian governments expend on health.

Nevertheless, we can’t make health all about finding savings in order to get the budget back in the black – this was a strategic mistake back in 2014.

Health reform supporters need to learn the lessons of the past three years

It’s a myth the co-payment was killed by the community’s desire to uphold the ‘‘fairness’’ principle of free and universal health care.

The unequivocal message sent by the electorate – that it was unwilling to accept the claw-back of health entitlements to cut the deficit – was driven by an entirely different hip-pocket sentiment.

Medicare is one of the chief ways taxpayers feel they are getting some of their taxes back. Those who felt they already pay enough tax thus rejected another ‘‘GP tax’’ – an understandable response, which made the co-payment an easy political kill for the defenders of Medicare.

For any meaningful changes to the health system to be politically feasible, the clear winners from the process have to be those individuals whose taxes pay for health.

Hence we need to think about health reform as we would think about any other public sector micro-economic reform challenge – in terms of releasing value.

Many Australians would be surprised to discover the hidden cost of Medicare: the fact that average, per-person government spending on health is near enough to $5000 per annum.

What if individuals were able to cash out their Medicare entitlements and deposit the money that would otherwise fund Medicare in a health savings account?

Health savings accounts could be linked to superannuation accounts, but with withdrawals permitted prior to retirement to both pay for health services directly and buy private health insurance.

Remember that the rationale for the co-payment was that a price signal would encourage cost-conscious use of health services.

So would a health savings account – except that individuals would reap the financial reward themselves. If super and health savings accounts were merged upon retirement, the ‘‘health savings’’ generated could be used to pay both for old age health costs and to increase retirement incomes.

This is just one of the ways the health reform debate could be reframed in positive terms.

A health savings system would create new business opportunities for both the financial services and insurance industries – and for entrepreneurial and innovative service providers – by freeing the money locked in the rigid Medicare framework.

This is to say that latent opportunities exist for different players if things are done differently in health.

We need to start by selling the potential benefits of long-term structural reform to a broader constituency outside of the beltway.

This is the only way to build the coalition of potential change supporters so they can pack a sufficient political punch to overcome the opposition of vested stakeholders wedded to the status quo.

Jeremy Sammut is senior research fellow and director of the Health Innovations Program at the Centre for Independent Studies