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Why shouldn't communities be allowed to opt out of Medicare?

By Vern Hughes - posted Monday, 3 May 2004

Health reformers would do well to ponder on the profile of the two low-income communities in Australia that have explored "opting out" of Medicare, and taking their Medicare financial entitlements with them.

Apanipimu health service is an Aboriginal organisation on Cape York, searching for new approaches to the appalling state of Indigenous health. What they have found is that passive health dispensed by well-meaning bureaucrats is as incongruous as passive welfare, and just as ineffective.

South Kingsville Health Services Co-op is a patient-owned health service in Melbourne’s deprived west (the setting for the 1980s film Spotswood). Its several thousand members elect a Board that engages doctors, dentists, and allied health practitioners in two neighbourhood clinics.


It is highly likely that Australia’s first health maintenance organisation (HMO) will emerge among Indigenous Australians on Cape York. Apanipimu is currently negotiating with the Federal Government for a "cashing out" of Medicare.

The fact that two existing communities (and low-income communities) have independently explored a "cashing out" of Medicare demonstrates two points of enormous importance. One is that health reform will eventuate only by public policy moving into line with advanced practices on the ground in real communities at the leading edge of their fields. This is an antidote to pie-in-the-sky utopianism, for which Australian voters have historically shown scant regard.

The second is that health reform in the direction of managed competition (the only coherent alternative to our current un-managed and fragmented supplier-driven system) will never eventuate if it is driven by powerful industry interests.

The current public debate about health care is concerned almost exclusively with the question of how much public subsidy is to be allocated to this or that group of suppliers (general practitioners, medical specialists, public hospitals, or private insurers). It avoids the critical question for reformers and consumers alike, which is how to turn around a situation where no part of our current system provides a financial incentive to manage health risks to keep people out of hospital, or develop marketable advantages around good management of health outcomes.

Why do we find this too hard? After all, Australians were once innovators in health care. In the 19th century, most of our medical care was organised through consumer-governed associations. Friendly societies contracted with medical providers for capitation-based payments (payments per head of population) for medical services. For a (usually) quarterly subscription, doctors were contracted by friendly society lodges to provide general practitioner services to a pool of enrollees. Networks of bush and community hospitals were established and financed on a similar subscription basis, with visiting doctors engaged on a mix of capitation-based contracts and fee-for-service (payment according to volume and nature of services provided). Subscription systems of financing formed the basis of pharmacy service provision through friendly society dispensaries across the country.

Can we become innovators again? Apanipimu and South Kingsville are showing how grass-roots communities can indeed become innovators. Indeed, they are the only part of the health system with a strong interest in becoming so.


In a nutshell:

  1. The health system is highly fragmented, with little continuity of care across program, service and practitioner types, with few incentives for the industry to become consumer-focussed.
  2. There is little or no financial incentive for practitioners and providers to keep people well and out of their surgeries or hospitals. On the contrary, most of the financial incentives favour repeat business with unwell patients.
  3. Consumers have little market-based power in the organisation and pricing of services. There are insufficient means for consumers to substitute one care regime for a better and more price-effective regime.
  4. Consumers have little access to brokerage services which purchase services on their behalf and negotiate over price and service quality. Agents or brokers like this operate in almost all other industries—finance, real estate, insurance, law, agriculture—but not in the area they are needed most: health.
  5. Private insurance is divorced from any active role in the management and delivery of health care, meaning it cannot contain costs without public subsidy and is therefore unsustainable.

Medicare has successfully provided universal health care access for all Australians but it now needs renovation if it is to give us patient-centred integrated care. There is no question of Medicare being removed – the question is how to introduce one form or other of managed competition to empower the consumer and curtail the fragmentation.

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About the Author

Vern Hughes is Secretary of the National Federation of Parents Families and Carers and Director of the Centre for Civil Society and has been Australia's leading advocate for civil society over a 20-year period. He has been a writer, practitioner and networker in social enterprise, church, community, disability and co-operative movements. He is a former Executive Officer of South Kingsville Health Services Co-operative (Australia's only community-owned primary health care centre), a former Director of Hotham Mission in the Uniting Church, the founder of the Social Entrepreneurs Network, and a former Director of the Co-operative Federation of Victoria. He is also a writer and columnist on civil society, social policy and political reform issues.

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