Better Value and Better Health

The Australian Financial Review
6 November 2012
By Rohan Mead
Group Managing Director, Australian Unity
Largely hidden by the glare of attention on whether the recent Mid-Year Economic and Fiscal Outlook has Australia on track for a surplus in 2012-13 was more evidence of a deeper, long-term truth – Australia’s rising healthcare costs are unsustainable.
The government’s MYEFO announcement that it would index the private health insurance rebate to inflation came with an explicit acknowledgment that the health costs problem is with us now and cannot be avoided.
The government’s proposal, which will reduce its exposure to this particular burden by capping its share of the premiums to a general inflation rate, makes sense in the light of its medium-term fiscal challenges. But will it deal with the longer-term fundamental truth that we are all paying more for a health system that is under pressure and is not delivering a sufficient improvement in health outcomes?
Australia’s health system is good: our outcomes and expenditure are about the middle of the pack of similar countries. But the prospect is that the health system will become stretched too thin.
Treasurer Wayne Swan recognised this when he said in the context of MYEFO that the private health insurance rebate, which costs about $5 billion a year, would grow by 6.3 per cent a year over the forward estimates. By 2022 the rebate would cost $8 billion a year.
Swan described the rate of increase as “unsustainable’’. Health Minister Tanya Plibersek made a similar comment in her explanation of the change, saying that health expenditure was growing at about 6.8 per cent a year.
Health costs are on a trajectory far steeper than other areas of expenditure. One way to deal with this is for government to step back from its current heavy involvement in premium-setting as a mechanism for controlling health inflation, and more actively support health funders to develop a commercially viable model for people to get more effective healthcare.
In other words, we should focus on reforms that ensure health services are not only delivered with better value but also provide better health outcomes for individuals.
For example, when an older female customer seeks a refund for care associated with a low-impact fracture, the funder would have a commercial imperative to identify her risk of osteoporosis and develop programs that would assist her to prevent further injuries.
The developmental work on such a system has already begun. Medicare Select is a proposal from the 2009 National Health and Hospitals Reform Commission for a universal, tax-funded health insurance scheme, which warrants renewed consideration in light of the MYEFO decision.
As a universal health insurance scheme, Medicare Select would incorporate Medicare – funded solely by the federal government – state funding and private insurers.
Everyone would receive an insurance contribution from the federal government, reflecting their demographic and level of health risk, which they could use to select an insurance plan from a private, government or not-for-profit insurance provider.
The funder would then have access to information regarding the breadth of risks and outcomes for its population and would therefore have a strong incentive to work with fund members to improve their health outcomes.
Just like the current system, such a system will provide a universal safety net, with the option for individuals to buy more health cover if they wish. Moreover, it will encourage greater competition among providers, currently a weakness in the system.
If we are to reform a system that will be required to cope with a rapidly ageing, health resource-hungry demographic, we have to move beyond incremental, budget-by-budget reform. We need a comprehensive and continual process of structural health reform that considers the balance between levels of government and the public and private sectors to get the quality of outcomes we all want.