Help Is At Hand On Health Costs
Sydney Morning Herald
Wednesday January 5, 1994
THE CRUX of the proposals to Federal Cabinet of the Health Minister, Senator Graham Richardson, is to reform Medicare and private health insurance by introducing a form of competition among health care providers and payers of health care, euphemistically called "managed care".
This proposal should be welcomed by most consumers, providers and payers of health care but already some fear the longer term consequences of a more efficient, market-driven health care system, and some have declared outright opposition to the proposal. Hopefully, the opposition of some members of Cabinet and parts of the medical profession will diminish when the full extent of the proposal is known and understood.
The proposal, as it affects the private sector, is designed to engender more competition through fewer nationally registered health funds. The health insurers will receive substantial subsidies (probably on a risk-related basis)from the Commonwealth in order to meet the full hospital and medical costs of their memberships. At present, State governments are required, by virtue of the Commonwealth prescription of health insurance benefits, to subsidise about half the cost of hospitalisation of private patients in public hospitals.
This policy was an essential component of Medicare because of the reasoning that private patients have effectively paid for this subsidy through their Medicare levy payments and income taxes. The problem with the current subsidy arrangement is that it makes the cost to patients of private treatment in public hospitals too cheap in relation to the unsubsidised cost of hospital services in private hospitals.
By redirecting this subsidy away from State governments to private health insurers directly, proper competition can develop between the public and the private hospital sectors and between hospitals in each sector. This will undoubtebly cause the public sector in particular to look for the efficiency gains that the private sector has been adopting for many years now.
The second part of the so-called "managed care" proposal involves withdrawing the Medicare medical benefits payments for hospital care of the privately insured and again subsidising the private health insurers to provide these benefits. This means that all the medical benefits for hospital treatment of the insured population will be paid by health insurers instead of only 25 per cent, as at present. This should be welcomed by the hospital specialists as it will, if anything, strengthen the doctor-patient relationship and considerably diversify the ultimate sources of their income. Income diversity, as any professional or businessperson knows, is essential for the long-term financial health of their professional and business activities.
A peripheral issue is the extent of the fees of the hospital specialists which are above the Medicare schedule fee. These so-called medical "gap" costs have grown significantly because the Commonwealth has kept a lid on Medicare fees for hospital specialists for at least the past 10 years. The general proposal is for some of the "gap" costs and the Medicare schedule fees to be paid to the hospital specialists by the hospital and recouped by higher hospital benefits from health insurers in the form of a single payment for each episode of hospitalisation. This would require negotiated agreements between the doctors, hospitals and health funds and a radical change in long standing billing and claims payment procedures.
Such a concept being new, and reflecting the hospital specialists' real power in relation to the hospitals, is being rejected by some elements of the medical profession who haven't yet understood the long-term implications of the furthering of the power it will give these members of the profession.
This complex proposal is ancillary to the main thrust of Senator Richardson's proposals and should be eschewed for the time being. This part of the proposal also doesn't really require legislation and can, if really worthwhile, be implemented by individual doctors, hospitals and health insurers on a piecemeal basis, as and when each party feels comfortable with its own negotiated arrangement.
In any event the financial pressure on the Commonwealth to hold down the Medicare schedule fee for in-hospital services will disappear since the health insurers will be fully responsible for these Medicare fee payments, not the Commonwealth. This will happen because the Commonwealth will frame its Medicare benefit subsidy legislation so that it reflects only the current level of costs and not the actual level generated by higher fees.
Senator Richardson's proposals have a major ideological advantage which should eventually benefit all Australians. The private health insurers will finally become recognised as an essential component of Medicare. This in turn will bring the private hospital sector into the overall Medicare scheme and should enable many efficiencies to be generated which should, in time, play a major part in reducing waiting times for public patients.
There is, however, one serious flaw in the proposal. Direct Commonwealth subsidies to health insurers have been introduced in the past when other subsidies to contributors have been withdrawn. The problem is that the Commonwealth Government has also found it very easy to reduce or remove these subsidies to health insurers when faced with budgetary pressures. Can the Commonwealth Government be trusted to maintain these new subsidies this time round?
© 1994 Sydney Morning Herald