The Medicare levy and the health system

Contributed by Joe Montero

It’s almost official now. The Medicare Levy is set to go up in the May budget. Governments have long had a habit of leaking out their intentions well before implementing them. Usually to get the public used to the intended change, before it is put into effect.  

This time it has come through the Australian Medical Association (AMA), which used its pre-budget submission to call for extras health revenue by raising the levy. The association is also calling for an increase in the total spent by the government on health.

“It is equally important to understand that any increase in the Medicare Levy does not absolve governments from the critical need to continue to reinvest in Australia’s health, including lifting the MBS freeze,” the peak doctors’ group says.

The budget is expected to be handed down on 9 May.

A  levy increase has got widespread support from leading politicians,  including on the Labor side,  Victoria’s premier Daniel Andrews and Queensland’s equivalent, Annastacia Palaszczuk. Nick Xenophon also supports it. One issue remains. How much is the government is going to spend on health. The size of the Medicare levy does not answer this..

It is argued that an 0.5 percent increase in the levy will raise more than $ billion in extra revenue each year. On its own, it will not cover the said shortfall of around $22 billion a year. The gap that needs to be filled is around $10 billion a year. So, if the 0.5 increase in the levy will only bring about half of what is needed. Where will the rest come from? We can expect a bigger rise in the levy,  a cut or another revenue raising exercise? At best the propsal can only be stopgap. A more permant solution is needed.

If we consider the last few years, the trend has been ongoing cuts to government health expenditure. Over this time, the proportion covered by Medicare has fallen from about 67 percent to just over 50 percent over a decade. The rest of it has come from general revenue. This fact has fueled support for some rise in the levy.

It seems reasonable at face value. But life is never this straight forward. It is important to also look at where the money is going and consider whether there can be a better alternative.

Close inspection shows that the health budget is bleeding by means of lavish payments to the private sector. In other words, the private health industry is getting generous government welfare. The subsidise the Pharmaceutical Benefits Scheme (PBS) soaks up $9 billion a year on its own. Most of this goes to Pharmaceutical companies that set an extraordinary price for drugs, on the basis that they exercise a monopoly over their production. It is true that development of new drugs is expensive. But the mark up can be many times, the cost of production and the massive benefits of economies of scale that these companies enjoy. Furthermore, profits are mostly transferred overseas and most of this is not taxed. prices paid to the pharmaceutical companies need to be rationalised to a reasonable level and excessive monopoly prices avoided. This would make a substantial cut to the $9 billion.

Around 28 percent of the funding of private hospitals comes from the taxpayers. We have seen a trend towards the gradual privatisation of hospitals and other primary health services, and with this, a gradual transfer of the government’s health expenditure shifted over  to prodding up the private sector. There is little evidence that this leads to better and cheaper health outcomes, with its   duplication, dependency on the private sector piggy backingh on public resources, together with duplicate administrations and opportunities to rort the system. Overlaying this is that the bottom line will always rule over the needs of patients, when these come into conflict.

Then there is the assistance given to the private health insurance industry. In the 7 years to 2013, this was $7 billion.

It adds up. Seriously cutting back on the subsidisation of the private health industry would provide an enormous saving to the cost of operating the Australian health system. Naturally, going down this road would involve extra cost in taking up the slack of a smaller private sector. But it is arguable that greater efficiency through the elimination of duplication would still go a long way to cclose the existing $10 billion expenditure gap.

These points may be challenged on same of the details.The estimates are only a rule of thumb. That is not the point. A thorough examination of the Australian health system is needed. This way, the sengths and weaknesses of the system can be found, based on a recognition that to maintain an adequate standard is the responsibility of government. The goal should be to find  best way for government to honour this responsibility.

The private sector is not delivering what is needed. If it were,  there would be no funding problem. There would be not need for generous subsidies, for they are the result of the failure of the market.  Of course, this can never be admitted, because it denies the claim that  the market always knows better. If its champions really believe that it knows better, they should not hesitate to call an end to corporate welfare. The fact that they don’t shows that even they lack the faith.












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