Health policy in Australia

18 February 2005

Links to key documents on the history of health policy in Australia since the 1940s.By Gwen Gray, author of The Politics of Medicare (right), published in APO’s Briefings series by UNSW Press

HEALTH POLICY is one of Australia's most controversial political topics and has been a major issue at every Commonwealth election since the 1940s. The central reason for disagreement is that major stakeholders have different - and conflicting - interests. Providers want high profits and incomes, consumers want to be able to access quality services at an affordable price and governments want to keep tight control over the money they expend. These objectives cannot all be achieved at the same time (PDF file), a reality that generates intense conflict. Adding to controversy in Australia is a strong ideological cleavage: the Liberal Party and its coalition partner, the National Party, have always taken a liberal individualist (PDF file) stance, favouring minimum government intervention in health policy, with a large role for private medicine and private insurance. The Australian Labor Party, on the other hand, at least until very recently, has taken a social liberal position, arguing that health should be publicly financed, in order to achieve access and equity objectives. The Australian policy pattern of oscillation between public and private insurance systems is unique among OECD countries and has been driven by political party competition.

Health is Australia’s largest industry, more than five times larger than defence, and it offers opportunities for great financial gain. Australian Institute of Health and Welfare figures show that it consumed 9.5 per cent of GDP in 2002-03, 1 per cent more than the OECD average. Moreover, health care costs have a propensity to increase faster than other prices, due largely to the introduction of new technologies and also because of increased utilisation. Contrary to a common argument, the aging of populations (PDF file) has only a small impact. Governments, which are responsible for a large proportion of expenditures in all OECD countries, therefore seek ways to moderate health inflation. But the private healthcare providers and health professionals tend to resist constraints on thieir incomes, so they oppose government efforts to limit the growth in expenditure - unless they can find ways of ensuring that consumers make up the shortfall, through user charges (also called copayments) or private health insurance premiums.

The problem with user charges and private health insurance premiums is that they are levied at a flat rate, taking no account of ability to pay. These payments create hardship for low income earners and result in financial barriers to access, defeating the purpose for which governments became involved in health systems in the first place.

Health financing became a major political issue when the Commonwealth first entered the field in the 1940s. A national prepaid hospital system was introduced in 1946 by the Chifley Labor government but attempts to introduce a national health service failed when the medical profession refused to cooperate. The incoming Menzies government abandoned the prepaid hospital scheme and introduced publicly subsidised, private health insurance in the early 1950s. The scheme came under intense criticism for its lack of coverage, heavy user charges, complexity and expense. In response, Labor developed plans for a national health insurance scheme, called Medibank, which the Whitlam government introduced in 1975. But Medibank was dismantled, step-by-step, by the Fraser Coalition government and the voluntary health insurance system was reinstated.

When next in office, from 1983, Labor again introduced a national health insurance scheme, this time called Medicare, which began operation on 1 February, 1984. Medicare is administered by the Health Insurance Commission. It provides prepaid hospital care for all citizens and reimbursement at 85 per cent of the schedule fee for out-of-hospital medical services. If medical practitioners choose to bulk bill - that is, if they send their bill to the Health Insurance Commission rather than to the patient - there is no charge to the patient at the point of service. Medicare also provides reimbursement of 75 per cent of the schedule fee for medical services delivered to private patients in hospital. The cost of the scheme is shared between the Commonwealth, states and territories, an arrangement which is governed by Australian Health Care Agreements, negotiated every five years.

A guide to key health statistics has been written by Amanda Biggs of the Commonwealth Parliamentary Library. More information about the operation of Medicare and other aspects of health policy is available from the Commonwealth Department of Health and Aging. Health Insite provides information about diseases and conditions and about health and well-being. Information about the operation of private health insurance in Australia is provided by the Commonwealth’s statutory regulator, the Private Health Insurance Administration Council (PHIAC).

For the first twelve years, the operation of Medicare was relatively uncontroversial. As the system became established and people felt able to rely on it, the proportion of people holding private insurance gradually declined, reaching a low of 30.6 per cent in 1998. During the same period, bulk-billing gradually increased, improving accessibility for more of the population. As a proportion of GDP, health care costs were relatively stable. Private sector vested interests called regularly for action to arrest the decline in private insurance but the Labor government of the day took no action, allowing Medicare to strengthen its position as the universal insurer. Although private insurance coverage declined during this period, research by John Deeble showed that the proportion of work being undertaken in private hospitals increased significantly.

Major change came, however, with the election of the Howard government in 1996. Although the Liberal Party had promised to maintain Medicare ‘in its entirety’ during the 1996 election campaign, in office, it in fact proceeded to implement a program very similar to theFightback! privatisation proposals that had been soundly rejected by the electorate in 1993. After abolishing the Commonwealth dental program, the government introduced the Private Health Insurance Incentives Scheme, which provided a means tested subsidy for private insurance premiums. At the same time, a Medicare Levy Surcharge of 1 per cent was imposed on high income earners who did not hold private insurance. The measures failed to increase private insurance so, in 1999, an uncapped, non-means tested private health insurance rebate was introduced. Again, Australians failed to respond to the incentives. The policy that finally succeeded in increasing private health insurance coverage was Lifetime Health Cover, which allows private insurance agencies to impose a surcharge on people over 30 years of age who do not hold private insurance. The introduction of the policy was accompanied by an $8.7 million publicity campaign, urging people to ‘Run for Cover’. It has been argued that fear, rather than financial calculation, was the reason for the policy’s success: people were afraid that, without private insurance, they would not be able to access hospital care.

After the introduction of Lifetime Health Cover, health policy controversy abated for a time but re-emerged with renewed intensity towards the end of 2002, in response to declining levels of bulk billing and commensurate increases in user charges. Australian Policy Online has published a review of the health politics of the period leading up to the 2004 election. The government responded with a policy package, called A Fairer Medicare which was highly criticised by all relevant stakeholders. Enabling legislation was blocked in the Senate, where the government had no majority. A Select Committee of Inquiry into Medicare was established which reported in October. With no hope of getting its legislation through the Senate and an election looming in 2004, the government announced a compromise policy package, called Medicare Plus. The Senate responded by setting up a second inquiry which reported in February 2004. The submissions to the two Senate inquiries, the commissioned reports from the Australian Institute for Primary Care, along with the transcripts of evidence from public hearings are a valuable source of information about Medicare from a wide variety of perspectives.

The main features of Medicare Plus are expanded safety nets and higher reimbursements for doctors who bulk bill concession cardholders and children. It is too early to evaluate the operation of the Medicare Plus safety nets. But figures released by Minister Abbott in September 2004 (but no longer available on his website) show that the vast bulk of expenditures found their way to high income electorates in the first quarter of operation, a finding which drew strong criticism from the academy and Labor health spokesperson, Julia Gillard.

The Howard government’s privatisation policies, particularly the 30 per cent taxpayer funded private insurance rebate, have been strongly criticised by a range of health experts, including Davoren, Butler, Deeble, Richardson, The Royal Australasian College of Physicians, Gray, Duckett and Jackson, Willcox and McAuley. The only sustained defence of the system, even on financial grounds, is a report by Ian Harper and Associates, commissioned by Medibank Private. A response to the Harper arguments has been made by Ian McAuley and by Age economic writer, Kenneth Davidson. A number of serious concerns face the Australian health system in the short-term. The first of these is the impact of user charges, which, despite the safety nets, means that low income Australians will continue to use fewer services than they need, as Blendon et al found in 2002. For the safety nets to come into operation, people must first find several hundred dollars from their own pockets, as well as money for any pharmaceuticals. A second problem is health inflation, which is set to continue, as discussed by Hall and Gray. International studies show that single payer systems are most effective in controlling health care costs and Australia has recently moved away from this model towards a multipayer system. One of the major problems with health inflation is that governments tend to respond by shifting costs onto consumers, in the form of user charges, further aggravating access problems. Third, there are acute shortages of health personnel and services in rural Australia, as the National Rural Health Alliance has documented. Fourth, concerns have been expressed by a number of experts including Drahos et al, Quiggin, Lokuge and Dennis and the Royal Australian College of Physicians (PDF) about the sustainability of the Pharmaceutical Benefits Scheme, a fundamental building block of the Australian health system, which analysts argue has been undermined by the government’s free-trade agreement with United States.

More serious problems loom in the longer term. It is recognised internationally that the major challenge facing modern health systems is how to ensure that quality services are available to all citizens at an affordable price. Proposals include more rigorous evaluation of treatments and technologies, mechanisms to improve quality and reduce adverse events and population health measures, including improved primary health care services, the main aim of which is the prevention of ill health. These issues hardly feature in Australian debates, which remain a fixated upon health financing, an issue settled in most OECD countries decades ago. •

Gwen Gray is a senior lecturer in political science at the Australian National University. A nurse in her first career, she has studied and written on the Australian and overseas health systems for over twenty years. Her book, The Politics of Medicare: Who Gets What, When and How, was published in the Briefings series by UNSW Press, in association with Australian Policy Online, in mid-2004 ($16.95).

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Gwen Gray, 2005, Health policy in Australia, University of New South Wales, viewed 09 December 2016, <>.

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