Michael Keating. The politics of the Medicare co-payment

Dec 13, 2014

The adjustments that Tony Abbott announced to the Medicare co-payment are presumably intended to remove this particular ‘barnacle’.  According to Graham Richardson, that self-styled political expert writing in the Australian, Abbott’s parliamentary colleagues ‘are breathing huge sighs of relief … that the Medicare co-payment has been so restructured that it scarcely exists anymore’. Really? Are they stupid or don’t they and Richardson know the facts?

The reality is that the $7 co-payment has been abandoned for pensioners, other card-holders and children, but for the rest of us the co-payment is still $5 a visit instead of $7. Furthermore, this difference of $2 has been taken back from the doctors who were previously going to receive this $2 while the government got the remaining $5. According to Abbott’s press release the revenue raised by this latest version of the co-payment will still amount to more than $3 billion, which is not much less than the $3.5 billion shown in the Budget; the difference of $0.5 billion presumably reflecting the loss of revenue from pensioners and children who will now not have to pay this extra charge.

In my view there is almost no chance of doctors lowering their prices by $5 and thus absorbing it, especially given the government’s intention that the Medicare rebates will be frozen with no indexation until July 2018. Instead, now that the doctors will not get the extra $2 that the government previously thought was justified, why would anyone expect the doctors to take another cut of $5 per visit.  Accordingly the $5 co-payment will almost always be passed onto the patient. Everyone will pay $5 more; about half of us for the first time, and the other half will have another $5 added to their existing co-payment. And with the Medicare rebate frozen it is likely that the extent of bulk billing will fall over time so that the co-payment will effectively increase by more than $5 on average over the next few years.

While removing the co-payment for pensioners and children has significantly ameliorated the impact of the co-payment on the lowest income groups, this latest change in the co-payment therefore does little for middle Australia.  The majority of people will be $5 worse off instead of $7 worse off and why should they be expected to thank the government for this.

Nevertheless, it has been argued that the budget has to be fixed and expenditure brought down, and in that context setting a price signal is good policy if we are to make health funding sustainable. The issue then is will the new $5 co-payment be more likely to deter unnecessary visits to the doctor, or is it more likely to deter patients who should see their doctor? In the latter case the co-payment is likely to lead to increased health expenditure where necessary treatment is postponed.

We cannot be sure of the answer to this critical question whether doctor visits, which might be deterred by the co-payment, are necessary or not. But it is worth noting that around half the people affected by the new co-payment, already face a significant price signal so in their case the risks would seem to be more towards the risk of not seeing a doctor when they should. While for those who will face a co-payment for the first time, it is worth noting that the increasing use of hospital outpatients wards, notwithstanding very long waiting times, seems to suggest that people with tight budgets are mostly not seeing a doctor unless they have a good reason.

Finally as John Menadue showed in his blog posted on 12 December there are many other better ways to restrain the future growth of expenditures in health care. So what Abbott’s announcement of his revised co-payment demonstrated is that we have yet another example of not very good policy that the voters are again likely to reject – the worst of all possible worlds.

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