Howard's Health Inflation Hurts The Poorest

by Mike Steketee - The Australian

The Howard Government has been hugely successful at the politics of health but at what cost?

Traditionally, Labor held a large lead over the Coalition as the party Australians thought had the best policies on health and Medicare. In 1993, voters preferred Labor on this score by a margin of almost 25 percentage points, according to the Australian Election Survey, the detailed opinion poll conducted by academics after each election. By 2001, this gap had shrunk to 13 points. In last year's election, it halved again to 6.3: Labor 43.5 per cent and the Coalition 37.2 per cent (with 11.2 per cent seeing no difference between the policies and 8.1per cent saying they did not know).

The big scare the Government ran in the election on interest rates attracted much attention. But also important was its strategy to neutralise Labor's strengths in areas such as health and education. This involved John Howard and Health Minister Tony Abbott abandoning all restraint and professing to love Medicare even more than Labor did. And it included Abbott's "absolutely rock solid, ironclad commitment" to the $300 and $700 thresholds for the Medicare safety net, which were dumped last week after the costs blew out.

But that is only part of the bill that is starting to come in. As health spending rises rapidly because of advancing technology and the ageing of the population, the Government seems intent on giving it an extra nudge.

This is where we are up to: total spending on health grew at an average 4.5 per cent a year after inflation in the 10 years to 2002. That is faster than in any of the other nine developed countries apart from New Zealand (4.9 per cent) and the US (also 4.5per cent) listed in the Productivity Commission's final report last week on competition policy.

It is a figure that has been accelerating in Australia. From 1992 to 1997, health spending grew from 8.2 per cent of gross domestic product to 8.3per cent. In the following five years, it jumped to 9.5 per cent. And there is much more inflation where that came from. In its report on ageing, also released last week, the commission projects health chewing up 16 per cent to 20 per cent of GDP in 40 years.

It is no secret that health spending has been growing as a proportion of the total economy and will continue to do so. But why is it rising faster than in most comparable countries? The commission gives us a clue. "Excess health inflation has been significant [during the past] 10 years for private health expenditure but less so for government expenditure," it says. Private health has been booming in Australia, thanks particularly to the handouts from the Howard Government, including the 30 per cent private health insurance rebate, the age and income penalties for not taking out private insurance and the safety net, which gives doctors an incentive to provide more services and charge more for them. That incentive remains, despite the changes announced last week.

If all this extra money were feeding directly into better health, there would be no reason to worry. But quite a bit of it is going into private pockets, including those of doctors. If a growth rate for health spending matching that of the US and a larger private sector are the way of the future, then hang on tight. Americans leave everyone else for dead when it comes to the cost of health care, which is 14.6 per cent of GDP, compared with the average of 9.7 per cent for the 10 developed nations on the Productivity Commission list. The US also has by far the largest private health sector, responsible for 55 per cent of health spending in the US, compared with an Organisation for Economic Co-operation and Development average of 33 per cent. Yet Americans on average are less healthy than in countries with much lower spending and much smaller shares for the private sector, including Australia. American health care may be the best in the world, but only for those who can afford it.

There is no great mystery why private health means more expensive health. As Doctors Reform Society national president Tim Woodruff puts it: "It's a sellers' market. The doctors are in control. For the patient, it's buy or die, or at least risk dying." It is a system reinforced by fee-for-service, which allows doctors to decide how much to charge and how often. The only restraints are in the public system, including bulk billing and caps on spending in public hospitals.

So why does the Government keep tilting the playing field towards private health? Presumably conservative ideology, which favours private over public in all things, despite all the evidence that, in health, this means more expensive, less fair and not necessarily better treatment.

Even compared with its Liberal predecessors, this Government seems to have a blind faith in the community-minded benevolence of the medical profession. The last time we had a safety net was in the pre-Medibank days under the Gorton government. But payments under it were related not to whatever doctors wanted to charge but to the scheduled fee set by the government. The knowledge that patients would bear the cost above the scheduled fee acted as a restraint on doctors.

The safety net is only one example of the Government giving precisely the opposite incentives to those required in a health system experiencing rapidly increasing costs. It also is regressive, with the bulk of the payments going to higher-income earners who are much more likely to go to high-charging doctors.

This may be a good way to win elections, but it is no way to run a health system.


Mike Steketee is The Australian's National affairs editor.