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How sick is our health system?

By Ian McAuley - posted Thursday, 11 October 2007

At first sight we’re travelling well. Along with Japan and the Nordic countries we have high life expectancy and generally low levels of morbidity, and most indicators are showing improvement over time. With a mixture of government, individual and private insurance funding we achieve these outcomes with outlays just below 10 per cent of GDP - around the OECD average and significantly below the 15 per cent the Americans spend (for much poorer outcomes).

Behind these indicators, however, lie a number of problems. There are pockets of severe disadvantage, particularly among Indigenous and other remote communities, and in many country and outer metropolitan regions. Mishaps in hospitals dominate the tabloid press, and there is evidence of poor management in some hospitals. There are signs that demand is exceeding capacity, with long hospital waiting lists, stressed emergency wards, and with workforce shortages in many professions. And our expenditure is rising rapidly, having risen from 8 per cent of GDP to 10 per cent over just 10 years.

In short, it ain’t broke, but it’s under stress. And it’s under stress because it doesn’t fit together as a system.


In fact, we don’t have a health system.

In Australia we have a number of loosely connected programs, some delivered by the Commonwealth, some by the states, and some by the private sector. It’s too much of a mess to be dignified by calling it a “system”.

Even within the two big Commonwealth programs, administering pharmaceutical benefits (the Pharmaceutical Benefits Scheme) and medical benefits (Medicare), there is little co-ordination. We have fragmented funding and delivery, without any consistent underlying policy.

If the reader’s patience allows, consider the following partial guide to health funding:

We have free public hospitals, but have to pay $30.70 for pharmaceutical prescriptions. If we have private insurance, generously subsidised by the government, some “ancillary” services such as dentistry are covered (only up to a capped amount), but if we choose to rely on our own savings for our ancillaries or private hospitalisation, we get no support. The safety net scheme for medical benefits is on an individual basis; for pharmaceutical benefits, by contrast, the safety net is on a family basis. Then, while safety nets operate calendar years, there is a 20 per cent tax rebate for medical expenses above $1,500 in a financial year, with different definitions of what qualifies as a medical expense.

That’s not to mention provisions for certain disadvantaged groups, such as concession card holders. And after the election there may be new arrangements: Labor is promising a state-based dental program, while threatening a Commonwealth takeover of hospitals, while the Coalition is on track to bring at least one hospital, the Mersey Hospital, under Commonwealth control.


Different programs have different legacies. The Pharmaceutical Benefits Scheme (PBS), for example, was developed in the postwar period when new “wonder drugs” such as antibiotics were prohibitively expensive. Medicare has its origins in the Whitlam Government’s Medibank, which met with strident opposition from interest groups and which has been whittled back by successive Coalition Governments and boosted by Labor Governments.

State hospitals have an even longer history; by now they are funded roughly equally by the Commonwealth and state governments, with a great deal of bickering in the process. Coalition governments have been generous to private insurers, allowing private hospitals to separate themselves from the public hospitals, thereby adding to fragmentation.

There is no locus of responsibility for health care as a “system”. The Commonwealth is obsessed with the rapidly rising budgetary cost of the PBS, and with retaining membership of private insurance. The Commonwealth’s Intergenerational Report looks at the components of Commonwealth health care funding, but does not consider state funding or private outlays. While the Commonwealth panics about projected PBS expenditure, it does not take a broader cost-benefit approach, for pharmaceuticals, if wisely used, can reduce hospitalisation and can allow people who would otherwise be incapacitated to lead productive lives.

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About the Author

Ian McAuley lectures in Public Sector Finance at the University of Canberra and is a Centre for Policy Development Fellow.

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