Out-of-Pocket Costs in Australian Healthcare and the $7 Co-payment.

In my blog of  May 12 on health co-payments I set out my objections to the proposal including that we already have a very high level of co-payments, that they are a “dogs breakfast” and that the proposal on its own would be unfair. The debate has moved on since then which raises further concerns about a proposal which covers not only GP consultations but pathology and radiology tests and pharmaceutical prescriptions as well.

My first concern relates to process and where this co-payment issue might be headed. Minister Dutton has repeatedly said that he wants ‘to start a national conversation’ about health. I agree. But the minister doesn’t do what he has promised. He has barged in with a ‘solution’ to the “unsustainability of Australian healthcare”, without any ‘conversation’. In practice what he is proposing in the budget is a mechanism to kill bulk billing and clear the ground for Private Health Insurance to fill the gap. Minister Dutton has said repeatedly that the government has an interest in greater involvement of PHI in primary healthcare. He said ‘we will be… looking over the next few years at new and innovative ways in which we might fund and deliver primary healthcare, including through partnerships with private insurers’. He has expressed interest in trials of PHI in primary care in Queensland.

In terms of equity and efficiency it is remarkable that the government proposes a $7 co-payment, but maintains the $5 billion p.a. subsidy for PHI. That is real corporate welfare at the expense of low income earners and our health service in general.

The intrusion of PHI into primary healthcare should be strenuously resisted. The experience with PHI around the world is clear, particularly in the US. It pushes up costs dramatically and does not improve health outcomes. There is no benefit to the Australian community if the government saves $1 in official taxes, only to turn round and for the community to pay  a lot more  in ‘taxes’ to BUPA, Medibank Pte or NIB, for the same or an inferior service. Because of its intrinsic inefficiency PHI will always be more expensive than Medicare. Since 1999 average PHI premiums have increased 130% whilst the CPI has increased by only 50%. PHI administrative costs are about three times higher than Medicare’s.

I have written extensively about the damage that PHI does wherever it gets a foothold. The encroachment of PHI into primary healthcare as suggested by the minister is a much more serious threat to our universal system of healthcare than the co-payment in itself.

Warren Buffet has described PHI as ‘the tapeworm in the US health sector’. It is also true in Australia. Its expansion here should be resisted. Minister Dutton is quoted as saying that he ‘will never go down the path of a US style healthcare system’. But allowing PHI into primary healthcare would take us down the American path.  Private doctors and private hospitals have enormous power to set prices unless there is some effective counter. Multiple private insurers have little power to control these prices as the US shows. Only a single payer, usually a public payer has the power to control prices

My second concern is that co-payments could discourage disadvantaged patients from seeing their GP. The COAG Reform Council has just reported that 5.8% of Australians delayed or did not see a GP because of cost and 8.9% delayed or did not fill a prescription from their GP because of cost. A co-payment will make that worse. It will force some patients to use more expensive and less appropriate emergency department services in public hospitals which are already under great pressure.

Third, the proposed co-payment will undermine preventive health services and continuity of care for people with chronic conditions. The best place to focus on prevention and at an early stage is in primary care. Any discouragement of access to GPs because of the co-payment would be detrimental to preventive healthcare. The decision by the government to abolish the National Preventative Health Agency is an indication of the government’s lack of concern on health prevention. The tobacco, alcohol and the junk food industries will be pleased with that abolition decision. A strong primary health care sector is the key to an equitable and efficient health care system anywhere in the world.

Fourthly, the best way to reduce costs and pressures in primary care is not through a co-payment but to move away from fee-for-service remuneration. This type of remuneration promotes ‘turnstile medicine’. FFS may be appropriate for occasional and episodic care but it is not appropriate for long-term and chronic care. We need a major review of remuneration practices in primary care with more emphasis on capitation and bulk-charges for chronic care to keep people well at minimum cost. The British single payer system has many advantages. One advantage is as the Economist of May 31 2014 put it, “doctors are paid to keep people well, not for every extra thing they do so they don’t make money performing unnecessary tasks and tests.” Addressing this remuneration question is far more important than a co-payment.

Fifthly, there will probably be unintended consequences for the $7 co-payment. If the co-payment takes effect, it is likely to result in an increase in doctor’s fees. The attraction of bulk billing for the doctor is that it removes the cost of handling and accounting for transactions. An invoice is sent directly to Medicare. Once the doctor is obliged to handle the $7 co-payment, another transaction occurs, either by cash or probably credit card. This inevitable patient/doctor money transaction will provide the doctor with an opportunity to charge above the bulk billing rate. As soon as doctors stop bulk billing, we can expect a rapid rise in doctors’ fees on top of the $7 co-payment.

Sixthly there are numerous other ways to reduce health costs and by billions of dollars e.g. the duplication and gaps in health care between the Commonwealth and the States, the out of date list of medical services funded under the MBS,, adverse events, archaic workforce structures and high drug costs resulting in us paying more than $2b pa than our New Zealand friends for equivalent drugs. But real savings in these areas means tackling vested interests like the AMA. The Pharmaceutical Guild, Medicines Australia, State health departments and the PHI sector. It is politically easier to attack the less powerful by a co payment.

Far from having a sensible and informed public discussion about health, Minister Dutton has embarked on an ill-considered and ideologically driven course.


John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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3 Responses to Out-of-Pocket Costs in Australian Healthcare and the $7 Co-payment.

  1. Avatar Matt James says:

    Here is a number of reports revolving around NIB CEO Mark Fitzgibbon’s glossed over lies, this article part of the Financial Review’s “health 2.0 series” an extended “infomercial” campaign for the Private Health Insurance Industry. “Golden Age of Private Healthcare Ahead” is one of the ominous headlines, penned by NIB CEO, MARK FITZGIBBON.

    EVERYTHING Fitzgibbon claims in the following,
    “Everyone benefits when insurers work with GPs”, again c/- The Financial Review is a total lie.

    “Try and think of an industry in which highly qualified operators have clients willing to pay them for services rendered but in which government says no.” – Absurd not to take PHI up on this yes?

    Then we have “knee replacements occur at a rate of 140 procedures per 100,000 in inner north west Melbourne but at 330 per 100,000 in country South Australia.” – So therefore SA is performing this operation far too much.

    The we have: “The Grattan Institute made headlines recently in disclosing a hip replacement can vary between $8000 and $25,000 depending upon the hospital.” – Hip replacements are a pet hate for Fitzgibbon, a rort for those out to improve their golf handicap. The irony of this being the Gratton Institute got these figures through research carried out in public hospitals. Private hospitals, being private, are much more of a closed shop and are far more reluctant to open their business to independent research. Which is great for Mark who never misses a chance to bag public hospitals and Medicare whenever he gets a chance.

    But then we have his glowing praise of US Insurer, United Healthcare. “United are able to predict with amazing accuracy a major medical episode of care well in advance based upon the initial visit to the GP, diagnostic services and pharmaceutical prescription.” – The logic been they can intervene before their precious money gets thrown down the drain. But insurers in the states perversely offer doctors financial incentives for doctors NOT to treat their patients who cost more than most and Mark wants that to happen here.

    United (who NIB have partnered with) along with the rest of big insurance in the US deliberately over charge for services offered through their Medicare Advantage plans, introduced 11 years ago as part of a Government/Private Insurance joint arrangement, money they divert to their stock exchange. The sum, nearly $70 billion in “improper” payments to Medicare Advantage plans from 2008 through 2013. This is nothing less than embezzlement and now the government wants the same thing to happen hear with what use to be Medicare Locals up for tender between soon to be sold off Medibank Private or BUPA (who just recently partnered with US insurer, Blue Cross/Blue Shield). Just recently to maximize their bottom line, United dropped 1000s of doctors off their Medicare Advantage plans, forcing patients to see providers they can stand over/screw.

    No wonder US citizens often refer to Health Insurers as criminals.






  2. I agree with you there but there are doctors who are good in nature even in profession but there is a business going between the medication and the doctors who prescribed I think they will get something when they prescribed the medicine that is higher than average.

  3. Avatar kylie says:

    John,whilst firmly agreeing with most of this, there is an inherent assumption that doctors should remain the gatekeeper to good primary care. This devalues other professions and keeps primary care inefficient particularly in prevention and chronic condition management.

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