The growing problem of out-of-pocket health care costs in health care is undermining the benefits of Medicare and creating a barrier to increasing fairness, opportunity and security throughout our health system.
Out-of-pocket costs are the direct payments made by consumers for their health care which are not subsidized by any form of public or private insurance (or any other funding source). They include co-payments for care partially subsidized by Medicare and the PBS (for example GP services and prescription medicines), co-payments for goods and services subsidized by private health insurance (for those who have it) and the full cost of unsubsidized and un-funded forms of care, typically non-prescription medicines, allied health services not subsidized by private health insurance, medical aids and appliances.
Currently, individual co‐payments comprise around 17% of total health care expenditure in Australia – the largest non‐government source of funding for health goods and services. This contribution by individuals represents a higher proportion of health care funding than in most other OECD countries and equates to $1,078 per capita per annum.
However, more important than the quantum of health funding contributed via co-payments is the way in which the burden of these out-of-pocket costs is spread across the population. There is a wide variation in the impact of co-payments on people with different illnesses and disabilities. People with conditions that can be largely treated by GPs or within the public hospital system generally incur lower co-payments than those with conditions that require allied health care and over-the-counter medicines.
This is the case independently of the length or severity of the illness/disability and its impact on both individuals and society as a whole. In fact, people with ongoing chronic conditions often end up receiving lower levels of subsidy for their health care than those with one-off or self-limiting conditions.
The overall impact of this ‘system’ is an inequitable and inefficient allocation of resources within our health ‘system’, compounding existing inequalities in our community. This is largely a result of the ad-hoc approach to co-payments and lack of leadership at the political level on this issue. Despite the fact that out-of-pocket costs make up almost one fifth of total health spending, Australia has no national policy on co-payments and there has been no comprehensive consumer or community consultation on this issue. Co-payments are set by governments, health care providers and others independently without any guidance from the community and without any overarching policy framework.
While there are a number of data and research gaps in this area, there is good evidence that existing co-payments within the Australian health system are causing financial hardship for many consumers and creating barriers to accessing care.
For example, the Commonwealth Fund’s 2013 International Health Systems survey and its 2008 Survey of Sicker Adults found significant evidence that co-payments were creating an access barrier for many consumers. Among the surveys’ findings were:
- 16% of Australians surveyed reported delaying access to treatment due to cost issues;
- 29% of Australians reported not accessing dental care in the past year due to cost; and
- 25% of Australians with a chronic condition reported not having a recommended test or follow-up treatment due to cost issues
These findings are reflected by recent research undertaken by the Consumers’ Health Forum which found that more than 70 per cent of respondents had delayed going to the doctor, around half of whom attributed this delay to cost worries. Key findings of the survey include:
- Many consumers are already experiencing difficulty affording health care costs;
- Many consumers are failing to access needed health care due to its cost; and
- Any new co-payments – even if small – will further add to the financial difficulties being experienced by many consumers and create additional barriers to accessing appropriate care.
Other international evidence reflects these findings and show that co-payments create barriers to access to health care for many consumers without decreasing overall health care costs.
Overall, international research in this area has found that:
- Co-payments result in decreased access to health care for vulnerable groups
- This decrease in access is proportional to the size of the co-payment
- Access to both high and low value health services decreases as a result of co-payments.
There is also no evidence that co-payments result in overall cost savings to the health system although there is some limited evidence that co-payments can increase downstream health care costs.
Without significant reform, co-payments will continue to threaten the equity and efficiency of our health system. However, addressing this issue requires an understanding of the unique nature of health payments and their impact on individuals and families.
Unlike many other household expenses, the costs of health care fall unevenly and unexpectedly and typically coincide with decreased earning capacity and higher expenses elsewhere. This means that even small expenses can be an intolerable burden for someone living from pay-to-pay, and large outlays can be financial crippling even for the well-off. Also, because health is such a fundamental criteria for participation in other aspects of life, any barriers to accessing care can have significant flow-on effects in areas such as employment and education, further compounding the gap between the least and most advantaged. To be successful, any reform measures must reflect the underlying and unpredictable nature of health expenses and the relationship between health and other aspects of well-being.
Part of the problem is the need to resolve areas of misunderstanding on both sides of the political spectrum in this area. On the left, the debate has focused on the role of universal health care as requiring ‘free at the point of service’ care. This has resulted in ongoing efforts to preserve bulkbilling and free public hospital services, while largely ignoring the rise in payments for other forms of care such as dental care.
On the other hand, conservative governments have misguidedly focussed on the role of private health insurance (PHI) in assisting Australians to meet their health care expenses, despite the multiple disadvantages of PHI as a funding mechanism (due the fact that it combines the moral hazard of insurance with the lack of price control possible with a single purchaser). The lack of understanding of the underlying issues affecting health co-payments by both sides of the political spectrum is a major barrier to progressing reform in this area.
Our federated structure can also prevent effort action in this area. Given Australia’s complex health ‘system’, with funding and service delivery responsibilities split between different levels of government and the public and private sectors, there will be no simple solutions. The cumulative impact of co-payments on consumers is multi-faceted, cuts across program and jurisdictional boundaries and arises out of the complex interactions between different areas of the health system.
Therefore, as radical changes are not likely to be politically palatable, the most realistic options for change involves smaller scale and targeted initiatives. This is likely to involve a suite of measures which partially address the issue within identified areas or populations. These may include:
- Workforce solutions: a reconsideration of when the GP gatekeeper role is essential, for example, through allowing practice nurses, pharmacists or others to provide clinically appropriate services (re-issuing of routine prescriptions, authorizing medical certificates, some preventive health activities) at a lower cost;
- Increased transparency around specialist fees: currently there is a large variation in fees charged by specialists and no evidence of a link between price and quality. Supporting consumers to find lower cost specialist services and working with specialist colleges to increase fee transparency, perhaps even shaming those whose fees are significant outliers, could help reduce the sometimes large out-of-pocket costs in this sector;
- The establishment of community health centres with salaried staff in areas of need. This would help in providing coordinated, prevention and chronic disease management services to a high risk group;
- Targeted assistance for people identified as having ongoing high health care costs. This would include people with chronic illnesses and seek to assist them in managing ongoing costs, for example, through identifying lower cost alternatives to their existing services/products, developing payment options to assist them in managing their costs, e.g. regular payment plans or providing targeted subsidies, e.g. PBS subsidies for people who rely on non-prescription medicine for serious illnesses; and
- Linking reduced co-payments and out-of-pocket costs to voluntary registration with a general practice and a pharmacy. There is some evidence that people with chronic conditions benefit from having a ‘medical home’ through improved management of their condition. Improving the health of people with chronic conditions is likely to also reduce their out-of-pocket health care costs and increase their productivity.
These proposals all have limitations and need further exploration. However, if developed further, in consultation with the community and based on existing evidence, they offer the potential to reform our current ‘system’ of health co-payments to deliver greater fairness, opportunity and security to consumers.
Jennifer Doggett is a Fellow of the Centre for Policy Development and a Consultant working in the health sector.
 Senate Reference Committee on Community Affairs. Out-of-pocket costs in Australian healthcare. August 2014. http://www.aph.gov.au/parliamentary_business/committees/senate/community_affairs/australian_healthcare/~/media/committees/clac_ctte/australian_healthcare/report.pdf