E-Brief: Online Only issued 9 May 2003; last updated 29 October
Social Policy Section
This e-brief provides an introductory background to Medicare,
describes the current system and its history and early development
as Medibank, and outlines recently proposed changes.
What is Medicare
Medicare is the Commonwealth funded health insurance scheme that
provides free or subsidised health care services to the Australian
population. It provides free hospital services for public patients
in public hospitals through the
Australian Health Care agreements with the States, subsidises
private patients for hospital services (75 per cent of the Schedule
fee) and provides benefits for out-of-hospital medical services
such as consultations with GPs or specialists (85 per cent of the
Medibank is Introduced
Following mounting dissatisfaction with the existing voluntary
health insurance scheme, major changes to Australia's health care
system were introduced by the newly elected Whitlam Labor
Government. Medibank commenced on 1 July 1975 after the passing of
the Medibank legislation by a joint sitting of Parliament on 7
August 1974. The Health Insurance Bill
1973 was the main bill that established Medibank, however
there were also several accompanying bills, including the
Health Insurance Commission Bill 1973.
The Health Insurance Bill 1973 and the accompanying bills
were rejected by the Senate on three occasions (12 December 1973, 2
April 1974 and 18 July 1974) but were subsequently passed at a
joint sitting of both Houses (7 August 1974) following a double
According to the Second Reading Speech of the Health
Insurance Bill 1973 delivered by the Hon. Bill Hayden on 29
November 1973, the purpose of Medibank was to provide the 'most
equitable and efficient means of providing health insurance
coverage for all Australians'. The objectives of the original
Medibank were summarised by R. B. Scotton (1977) as universal in
coverage, equitable in distribution of costs, and administratively
simple to manage.
Financing and Cost
The original legislation proposed financing the program through
a taxpayer levy of 1.35 per cent on taxable income, with exemptions
for low income earners. However the Senate rejected the bills
dealing with financing of the program in August 1974 and again in
December 1974. Consequently, the final program was funded entirely
from general revenue. The cost of Medibank in its first year
(1975-76) was $1.647 billion, according to Scotton (1977). The
hospital side of Medibank involved free treatment for public
patients in public hospitals, and subsidies to private hospitals to
enable them to reduce their fees. Benefits for public hospitals
were provided through hospital agreements with state governments,
under which the federal government made grants equal to 50 per cent
of net operating public hospital costs.
Changes Under the Fraser Government
The Medibank program had only a few months of operation before
the dismissal of the Whitlam Government on 11 November 1975, and
the subsequent election of the Liberal-National Coalition under
Fraser in December 1975. Following the election, a Medibank Review
Committee was established in January 1976. The Committee's findings
were not made public but the new program was announced in a
Ministerial Statement to Parliament on 20 May 1976. 'Medibank Mark
II' was launched on 1 October 1976 and included a 2.5 per cent levy
on income, with the option of taking out private health insurance
instead of paying the levy.
Other significant changes in 1976 included the federal
government declaring the hospital agreements with the states
invalid, and the subsequent introduction of new hospital agreements
under which the federal government provided 50 per cent funding for
approved net operating costs. Also in 1976 legislation was
passed allowing the Health Insurance Commission (HIC) to enter the
private health insurance business. This led to the establishment of
Medibank Private on 1 October 1976.
In 1978 medical benefits were reduced to 75 per cent of the
Schedule fee and bulk billing was restricted to holders of
Pensioner Health Benefits cards, and those deemed by the doctor to
be, in the Minister's words, 'socially disadvantaged'. The health
insurance levy, and the compulsion to insure was abolished in
In 1979 Medicare benefits were limited to the difference between
$20 and the scheduled fee. And in 1981 access to free hospital and
medical care was restricted to pensioners with health care cards,
sickness beneficiaries, and those meeting stringent means tests. An
income tax rebate of 32 per cent was introduced for those with
private health insurance.
Medicare from 1984 Onwards
The major changes introduced by the Fraser Government were
largely rejected by the Hawke Labor Government, which returned to
the original Medibank model. Although the financing arrangements
were different, and there was a name change from Medibank to
Medicare, little else differed from the original. Medicare as we
know it came into operation on 1 February 1984, following the
passage in September 1983 of the
Health Legislation Amendment Act 1983, including
amendments to the Health
Insurance Act 1973, the National
Health Act 1953 and the Health
Insurance Commission Act 1973. It differed from
the original Medibank program only in matters of detail.
Dr Blewett in his
Second Reading Speech in September 1983, described the
legislation as 'a major social reform' that would 'embody a health
insurance system that is simple, fair and affordable'. He also
emphasised the 'universality of cover' as being 'desirable from an
equity point of view' and 'in terms of efficiency and reduced
Funding for Medicare was to be
'offset' by a Medicare levy, originally set at 1 per cent of
taxable income, with a low income cut-off point of $7110 per year
for a single person and $11 803 for married couples and sole
parents. Below these income levels no levy was payable. More
details are provided in the
Second Reading Speech given by Chris Hurford when he introduced
the Medicare levy bill in September 1983.
The Medicare levy is currently set at
1.5 per cent of taxable income.
Department of Health and Ageing's Annual Report shows
Commonwealth expenditure on Medicare for 2002-03 totalled $19.930
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Changes to Medicare Since 1984
There have been a number of changes to Medicare and increases to
the Medicare levy since 1984. The following table summarises these
Bulk billing restored
Rebate at 85 per cent, maximum gap $10
Free public hospital
Medicare Levy set at 1 per cent of taxable income
Gap increased to $20
In hospital rebate set at 75 per cent, with private health
insurance to cover remaining 25 per cent
Medicare levy increased to 1.25 per cent
Introduction of a co-payment of $2.50 for all direct billed
consultations, except concession card holders, and reduction of
rebate by $3.50 for non-bulk billing GPs
Introduction of a Safety Net (indexed annually) to offset impact
on low income earners
Co-payment changes abolished after only 3 months
Medicare levy increased to 1.4 per cent
Medicare levy increased to 1.5 per cent
0.2 per cent surcharge on Medicare levy for gun buy back scheme
(till June 1997)
Medicare Levy Surcharge of 1 per cent
for those with household income over $100,000 who do not have
private health insurance
Health Insurance Incentive Scheme commences providing a capped
means test rebate for hospital and ancillary health insurance.
1 January 1999
Uncapped 30 per cent private
health insurance rebate introduced, (replacing PHIIS) to
encourage uptake of private health insurance which reaches a low of
30.5 per cent in June
health cover commences in July
In early 2000, a Medicare levy increase for individuals with a
taxable income above $50 000 for 2000-2001 only, was proposed in
order to provide funding for Australia's role in East Timor. At the
time the Federal government argued that this extra levy was
necessary to keep the budget in surplus. However, in the lead up to
Budget 2000, a matter of weeks before the tax was due to come into
effect, it was announced that the Timor Levy would be scrapped. The
reason given by the government for withdrawing the Timor Levy was
that the cost of Australia's involvement in East Timor was much
lower than originally forecast and the budget was in surplus.
Details of the proposed legislation are available in Medicare
Levy Amendment (Defence - East Timor Levy) Bill 2000, Bills
Digest, no. 131, 1999-2000.
In April ‘A
Fairer Medicare’ announced, including changes to the
Safety Net, incentives for GPs to bulk bill concession card
holders, and private health insurance for out-of-pocket
out-of-hospital medical costs. Proposed measures examined by
Senate Select Committee on Medicare which recommends against
In August following considerable debate the States and
Territories begin to sign up to the new
Australian Health Care Agreements 2003-2008 which allocate $42
billion to States and Territories to provide free hospital
Medicare Plus announced in November includes proposed changes
to the Safety Net and incentives for GPs (not implemented until
From 1 February, each bulk-billed GP service to concession card
holders and children to attract an extra $5 incentive payment to
Medicare Plus changes to Safety Net apply from 12 March. The new
Safety Net pays 80 per cent of out of hospital Medicare expenses
for: families and individuals covered by a Commonwealth concession
card or receiving Family Tax Benefit (A) once their out-of-pocket,
out of hospital expenses exceed $300 in a calendar year; other
individuals and families, once their out of pocket, out of hospital
expenses exceed $700 in a calendar year.
From 1 May a $7.50 incentive paid to GPs for bulk-billed GP
consultations with concession card holders and children under 16 in
non-metropolitan areas (RRMAs 3-7) and Tasmania introduced. This
incentive replaces the earlier $5 incentive in these areas.
As of 1 September eligibility for the $7.50 incentive payment to
GPs extended to
eligible urban areas and large regional centres.
Under Medicare Plus new
MBS items introduced for certain allied health and dental
services from 1 July.
Source : Adapted from Duckett, The Australian Health Care
System, 2000, and Grant and Lapsley, The Australian Health
Care System 1992, 1993, Department of Health and Ageing
Annual Reports (various years), Ministerial press releases
For a comprehensive history of Medibank refer to R. B. Scotton
and C. R. Macdonald, The Making of Medibank, 1993.
The early history and principles of Medibank are summarised in
R. B. Scotton, 'Medibank 1976', in The Australian Economic
Review, First Quarter, 1977.
For a more detailed chronology charting the progress of Medibank
to Medicare, see R. B. Scotton's 2000 chronology,
'Medibank: from Conception to Delivery and Beyond ' in the
Medical Journal of Australia, vol. 173, pp. 911.
For comprehensive details of the Medibank program under the
Whitlam Government see R. B. Scotton, 'Health Services and the
Public Sector', in R. B. Scotton and Helen Ferber (eds), Public
Expenditures and Social Policy in Australia, vol. 1,
University of Melbourne, Melbourne, 19781980.
For details of the Fraser Government's changes to Medibank see
R. B. Scotton, 'Health Insurance: Medibank and After', in R. B.
Scotton and Helen Ferber (eds), Public Expenditures and Social
Policy in Australia, vol. 2, University of Melbourne,
How Medicare Works
Medicare provides financial assistance to eligible people who incur medical expenses in
respect of professional services rendered by eligible qualified
medical practitioners, participating optometrists eligible dentists
and eligible allied health workers. Medicare benefits are paid
based on 85 per cent of the Medicare
Medicare also provides free in-hospital services in public
hospitals for patients who choose to be treated as public patients.
Under the Medicare arrangements, public patients in public
hospitals are not charged for their medical services or hospital
accommodation costs. Funding for services to these patients is
shared between the Australian Federal Government and State
and Territory Governments under
Australian Health Care Agreements. Some dental services
lip and palate services also attract Medicare benefits.
For private patients in hospital Medicare will cover 75 per cent
of the Schedule fee.
Some types of medical services are not covered by Medicare.
These include services to eligible veterans and their dependents
(separate arrangements apply), services covered by compensation
arrangements (interim benefits may be paid, pending settlement of
the matter), most Government funded community health services, as
well as services not necessary for patient care (for example,
examinations for employment purposes).
has more details on what Medicare covers.
Medicare Schedule of Fees
Benefits for services provided by medical practitioners are
based on a Schedule of Fees listed in the Medicare Benefits
Schedule (MBS). This Schedule of Fees is indexed annually using
the Wage Cost Index (WCI5), which is a compilation of the CPI and a
safety net component.
The Schedule is distributed in November each year with a
supplement produced mid year.
The table below shows increases to the Schedule fee for a
standard GP consultation, the average patient contribution, and GP
bulk billing rates since 1992.
(Standard GP consult)
to 30 June ($)
% GP services
bulk billed to 30 June
Source : Medicare Benefits Schedule and Medicare
Statistics, various years.
The scheme covers all people normally resident in Australia,
except foreign diplomats and their dependants.
People who reside in Australia are eligible if they meet
any of the following criteria:
- they hold Australian citizenship
- they have been issued with a permanent visa
- they hold New Zealand citizenship, or
- they have applied for a permanent visa; restrictions apply to
persons who have applied for a parent visa (other requirements
Visitors from countries with which Australia has
reciprocal health care agreements are covered in certain
circumstances. Likewise, Australians visiting these countries are
entitled to health care under their public health schemes.
Agreements are currently in place with New Zealand, the United
Kingdom, the Netherlands, Sweden, Finland, Italy, Malta, Ireland
Children over 15 can have their own Medicare card.
As of 29 August 2000, holders of Temporary Protection Visas have
access to Medicare. Asylum seekers have access if they have an
unfinalised application for a permanent residence visa (i.e. either
for migration or asylum); and hold a valid visa with work rights in
force. Some asylum seekers without work rights may qualify for
Medicare if they are the spouse, child or parent of an Australian
citizen or permanent resident.
Further details on eligibility and enrolment are available from
Insurance Commission or from Medicare Offices.
How Medicare Claims are Made
There are currently three ways of billing under Medicare. Where
medical practitioners decide to bulk
bill Medicare, the service is free of charge to the patient
and the practitioner accepts the Medicare rebate as full payment
for the services. Services to non-inpatient services (e.g. GP
consultations) attract a benefit of 85 per cent of the Schedule
Or the patient can pay the doctor's account and then claim the
benefit from Medicare, or claim from Medicare for the unpaid
account and receive a cheque made out in the practitioner's name -
to whom the cheque is then given, plus any balance still
The patient may have to pay the difference (or gap) between the
benefit and the total fee charged at the time of service. If the
medical practitioner charges less than 85 per cent of the Schedule
fee, Medicare will only pay the amount equal to the
Medicare benefit payments are made through a network
of 226 Medicare offices (101 in rural areas), administered by the
Health Insurance Commission (HIC). More details on how to claim
from Medicare are available from
Safety Net Arrangements
Under Medicare, Safety
Net Arrangements apply which protect patients from
significant out-of-pocket costs for non-inpatient services.
Under the new
Medicare Plus Safety Net arrangements Medicare pays 80 per cent
of out-of-hospital Medicare expenses for: families and individuals
covered by a Commonwealth concession card or receiving Family Tax
Benefit (A) once their out-of-pocket, out-of-hospital expenses
exceed $300 in a calendar year, and; other individuals and
families, once their out-of-pocket, out-of-hospital expenses exceed
$700 in a calendar year. In addition the arrangements under the old
Medicare Benefits Safety Net continue to apply in conjunction with
the new Medicare Plus safety net. These arrangements are for
‘gap payments’ (i.e. the difference between the
Schedule fee and the Medicare rebate). Once gap payments exceed
$328 Medicare benefits will increase to 100 per cent of the
Schedule fee for the rest of the calendar year (this applies to all
individuals and families).
Although individuals do not need to register for the Safety Net,
couples and families do. More details, including how to register
for the Safety Net are available on the HIC
Safety net summary
Who it is
How it is
Commonwealth concession card holders
Families receiving FTB(A)
80% of out-of-pocket costs
All Medicare card holders
80% of out-of-pocket costs
All Medicare card holders
Based on gap amount
100% of Schedule fee
* This figure is adjusted in line with the Consumer Price Index
(CPI) on 1 January each year. Source HIC.
Partial funding of Medicare medical benefits expenditure is from
a levy on taxable income. The balance of funding for Medicare
medical benefits is from consolidated revenue. The Medicare Levy
was originally set at 1 per cent of taxable income when first
introduced in 1984; however it has gradually increased since then.
It is currently set at 1.5 per cent of taxable income.
The Medicare levy only funds a portion of total Commonwealth
expenditure on health. In 2002-03 health expenditure by the
Commonwealth totalled $33.377 billion, while receipts from the
Medicare levy totalled $5 billion, or 14.9 per cent of health
The Medicare Levy Surcharge is an additional 1 per cent
surcharge of taxable income imposed on high-income earners who are
eligible for Medicare but who do not have an appropriate level of
hospital insurance with a registered health fund. The Medicare Levy
Surcharge is in addition to the normal 1.5 per cent Medicare levy.
More information on the surcharge is available by clicking on the
Medicare is a very popular government program and public support
has been high. In April 1984 just after its introduction, 52 per
cent of respondents to an opinion poll commissioned by the Health
Insurance Commission (HIC) were in favour of Medicare, and this had
risen to 85 per cent in 1993, according to a 1994
Background Paper prepared by the Parliamentary Library.
Community satisfaction with Medicare remains high at 93 per cent
according to the latest HIC Annual Report.
In 2002-03, the HIC processed 221.4 million services,
representing $8.116 billion in Medicare benefits, and covering 20.6
million people enrolled in Medicare. Other key statistics on
Medicare are contained in the HIC's
Bulk billing occurs when the medical practitioner bills Medicare
directly, accepting the Medicare rebate as full payment for the
service (this is sometimes also referred to as direct billing).
Under these arrangements no additional charges relating to the
service can be made, consequently there is no out of pocket cost to
Statistics released by the Department of Health and
Ageing provide details of current and past levels of bulk billing
(including by electorate), number of Medicare services accessed,
average patient contributions and other relevant data. The latest
statistics are available online.
A useful introductory table is the Analysis of
Major Aggregates by Broad Type of Service which includes
summary data on number of services, benefits paid, patient
contributions and bulk billing levels. Table
A7 shows the percentage of all services bulk
billed, while Table
C3 shows bulk billing rates for unreferred GP attendances.
Levels of bulk billing for unreferred GP attendances have been
declining in recent years after reaching a high of 79.7 per cent
in1996-97. By the December quarter 2002 bulk billing for unreferred
GP attendances had declined to 68.8 per cent, but by June 2004 this
had improved to 70.2 percent.
Bulk billing rates by Federal electorate are now released as
part of the Medicare Statistics (year end figures only).
Table E1 shows the percentage of non-referred (GP)
attendances by Federal electorate. The most recent data (year
ending December 2003) shows the electorate of Indi has the lowest
level of bulk billing (29.8 per cent) while Chifley has the highest
(98.3 per cent).
For an exploration of the reasons for the decline in bulk
billing, see the Department of the Parliamentary Library's Current
Issues Brief Decline
in Bulk Billing: Explanations and Implications, (also
available as an audio brief) by Amanda Elliot.
For an exploration of the universality of Medicare see the
recent Research Note Is
Medicare Universal? by Amanda Elliot.
Proposed Changes to Medicare
Proposals for changes to Medicare were announced by the
Coalition during the 2004 election campaign. These include from 1
January 2005 increasing the Medicare rebate for all GP services to
100 per cent of the Schedule fee, plus increasing fees paid by the
Department of Veteran’s Affairs for GP services provided to
eligible veterans and war widows from 100 to 115 percent of the
Medicare fee. Details are available in this
election policy statement.
These changes will require amendments to the Health
Insurance Act and related legislation.
For copyright reasons some linked items are only
available to Members of Parliament.