Road map for Australian health care reform - Part II

The upcoming surge of retiring baby boomers is aggravating problems caused by the fundamental shift in the root causes of ill health - the change from contagion or bugs (spreading epidemics), to new life style diseases such as obesity or high cholesterol. It is probably too early to concede victory to the anti-ageing lobby (J. Sammut: The Coming Crisis of Medicare, CIS Policy Monograph, 2007) who dismiss the health funding crisis, because there is no doubt there has been faster than GDP growth of health expenditures for nearly two decades. By the middle of this century health expenditure is expected to grow to 15-19 per cent of GDP (Treasury data). It doesn’t really matter what to blame most, baby boomers, ageing, obesity or an increase in chronic conditions - they all matter.

More important still there is a major shift in the causes of diseases. Epidemics, like cholera, used to hit everyone and therefore was homogenised and unified. The answer to that was one-size-fits-all medicine, which is still around - providing collective health care arrangements with free hospital care, universal insurance and drugs benefits for everyone. The new epidemics are due to cholesterol and lifestyle. These are thoroughly personal, rooted in our private differences and this is ever more pulling us apart. The answer is bespoke individual treatment. However all developed health systems were designed in the era of epidemics and have hardly adapted to the new reality.

Proof of that comes from OECD data demonstrating that different health outcomes do not necessarily reflect good or poor health care anymore. This partly explains why the gap between non-Indigenous and Indigenous health is widening. With 17 years difference in life expectancy this gap is worse in Australia than in the US (four years), New Zealand (six years) and Canada (seven years) according to Andrew Twaddle (Ed., Health Care Reform Around the World, 2002).

Sure, this gap is more driven by lifestyle differences than anything else - as has been demonstrated with the study Eight Americas (2006 Harvard School of Public Health) each of them reflecting regional race-mixes and which found differences in life expectancies between groups of up to 35 years. And what’s so irritating is this: factoring out wealth, race, and even access to health insurance doesn’t eliminate the differences in life expectancies.

Peter Huber, senior fellow at the Manhattan Institute in New York (City Magazine online 2007):

Common as they still are, insurance systems that pool health risks indiscriminately are vestiges of the past. They can’t survive what lies ahead. Insurance makes sense for risks that people can’t control. The inconvenient truth for advocates of universal health insurance is that new drugs for the first time put people in overall control of their medical conditions. Of course this has not banished luck completely but the role for big government is definitely over in medicine.

One answer is de-mutualisation - underway at Medibank with other big health funds following suit - and shared risk management with subsidised health savings accounts. If people can control almost half of their health risks (the Australian Government figure is 36 per cent) then they obviously need health insurance only for catastrophic illness, which is much cheaper than universal coverage.

Russell Schneider, previously head of the Australian Health Insurance Association, says: “Medicare is so sick that thousands, perhaps hundreds of thousands of people will not get the care to which they are entitled, and some of those people will die.” (ACHR research paper Nov 2006).

Devolution of Medicare into consumer-directed health plans

There is no government role in health care provision even on the state level other than the provision of public health arrangements. However Peter Drucker from the Harvard Business School warns: “Systematic abandonment is both the most important and most difficult step in innovation” (Elizabeth Haas Edersheim, The Definite Drucker, 2007). However it is underway: the nation’s two biggest redevelopments of public hospitals in Adelaide and Sydney will not be led by the states but by Private Public Partnerships, indicating state failure and suggesting a much bigger role for the private hospital market, which has nearly 50 per cent market share already.

If we consider new health funding arrangements, we need to keep in mind that every health care system has to allocate or manage scarce resources among unlimited wants. And in order to control health care costs, someone must choose between health care and other uses of money. Since the value of health care is experienced subjectively, that decision can better be made by patients, except for emergencies, rather than by third parties like government, employers or insurers. It’s for a good reason that elegant solutions to problems often come from customers.

But mounting cost pressure is also important. In order to fend off a disrupting meltdown of Medicare we depend on changing unhealthy behaviour by handing back responsibility and control of health expenditures to consumers. The reason for that is that privacy laws and data protection prohibit any third party intervention into personal live-style.

The only escape from this dilemma is to put together the roles of patient, consumer and payer. Just get informed consumers in charge of minor health expenditures such as drugs and doctor visits or preventive care. For elective surgery consumers can look out the hospital that fits them best. And if they permanently don’t look after themselves properly health funds can charge them higher premiums.