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The answer is real health reform, not more money

By Jeremy Sammut - posted Friday, 5 October 2007

Last week’s announcement by the Treasurer of a $2.5 billion “Health and Medical Investment Fund” to purchase cutting-edge medical infrastructure for public hospitals should draw attention to the crisis Medicare is facing as the population ages over the next 40 years.

In coming decades, a wondrously expanded range of expensive and sophisticated medical technologies will become available, thanks to the medical revolution currently underway. In two reports published in 2005, the Productivity Commission found that the new drugs and procedures in development are set deliver high tech, high cost treatments for diseases strongly linked with old age and associated with rising levels of obesity and “lifestyle” disease.

This means that as the population ages, large numbers of elderly people will want access to these new treatments to alleviate chronic conditions such as arthritis, dementia, heart disease and diabetes. Ageing, in combination with advances in medical technology, will drive up the demand and cost pressures on the health system to unsustainable levels. In a globalised economy, governments will not be able to raise taxes high enough to pay for Medicare.


Medicare is a 20th century social policy. It was designed to deliver relatively cheap and basic health care to a younger and healthier population. But Medicare will not cope with the demographic and medical realities of the 21st century.

In an ageing Australia, Medicare may continue to cover the basics, but governments will be forced to slow the take up of new technology and to strictly ration access to new treatments. The proportionately smaller base of PAYE taxpayers of tomorrow will not be able to provide all Australians with subsidised access to all the state-of-the-art medicine available.

Some might therefore welcome the Treasurer’s decision to divert part of the budget surplus into a “Health Future Fund” to pay for the rising cost of whizz-bang medicine. The truth is that we do need to save more now to spend more on the healthcare we want in the future. But the earnings on the fund will yield a modest $150 million a year - a mere 0.2 per cent of overall health spending.

And, more importantly, throwing more money at Medicare is not the answer, because this does nothing to address the real problems that plague the health sector.

The problems with Medicare are structural. Whenever healthcare is “free” (or nearly so) at point-of-service, this will encourage over-use, over-servicing, and waste of health dollars. Up to now we have been able to carry this, but the key issue for the future is how to afford all the revolutionary treatments that will prolong and improve our lives.

When the taxpayer base is getting smaller, sooner or later there will have to be a new approach to financing the healthcare of Australians. The federal government hiding excess tax in a Future Fund does not begin to address the problem. The answer is that those of us who can afford it will have to save more of our own money to pay for our own health care.


One idea is to adapt the existing superannuation system to allow or even compel people to set up a separate component in their super funds to fund the costs of their future health and aged care needs.

Another possibility would be to allow individuals to opt out of Medicare in return for an income tax break. The tax saving would have to be used to fund a personal Medical Savings Account, from which they could make withdrawals to cover day-to-day medical expenses and pay for private health insurance premiums.

Consumers would then have an incentive to “shop around” and avoid unnecessary visits to the doctor.

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About the Author

Jeremy Sammut is a Research Fellow at the Centre for Independent Studies. Jeremy has a PhD in history. His current research for the CIS focuses on ageing, new technology, and the sustainability of Medicare. Future research for the health programme will examine the role of preventative care in the health system and the management of public hospitals. His paper, A Streak of Hypocrisy: Reactions to the Global Financial Crisis and Generational Debt (PDF 494KB), was released by the CIS in December 2008. He is author of the report Fatally Flawed: the child protection crisis in Australia (PDF 341KB) published by the CIS in June 2009.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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