Health Insurance Amendment (Medicare Safety-nets) Bill 2005


Index

Bills Digest no. 017 2005–06

Health Insurance Amendment (Medicare Safety-nets) Bill 2005

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details


Passage History

Health Insurance Amendment (Medicare Safety-nets) Bill 2005

Date Introduced: 23 June 2005

House: House of Representatives

Portfolio: Health and Ageing

Commencement: 1 January 2006

Purpose

To amend the Health Insurance Act 1973 to increase the annual thresholds above which benefits under the extended Medicare Safety Net are payable. The thresholds will increase from $306.90 to $500 for concession card holders and other low income families, and from $716.10 to $1000 for all other families and individuals from 1 January 2006.

Background

What is the extended Medicare Safety Net?

The extended Medicare Safety Net was introduced in March 2004, as part of a series of changes to Medicare under the auspices of the government s Medicare Plus package. The Safety Net is designed to assist patients with high, cumulative out-of-pocket medical costs: it provides reimbursement for out-of-pocket costs incurred for medical treatment provided outside a hospital, once certain thresholds are reached.(1)

Under the Medicare Safety Net, patients are reimbursed for 80 per cent of their out-of-pocket costs (that is, the cost over and above the relevant Medicare rebate) for medical treatment received in a non-hospital setting,(2) once a certain threshold is reached in a calendar year. This includes out-of-pocket costs for things like GP and specialist consultations, and diagnostic tests such as X-rays and pathology exams. In other words, once an individual or family has incurred out-of-pocket costs for non-hospital medical services which add up to the threshold amount in a calendar year, the Safety Net covers 80 per cent of any further out-of-pocket costs for the rest of that calendar year.

The current thresholds are $306.90 for Commonwealth concession card holders and families in receipt of (or eligible for) Family Tax Benefit (A), and $716.10 for all other individuals and families (the thresholds are indexed annually).(3)

Controversy over the Safety Net

Since its introduction in March 2004, the Safety Net has been very popular with patients (not surprisingly since it provides patients with protection against the cumulation of high out-of-pocket medical costs). Figures released by Health Minister last year showed that 650 000 people qualified for the Safety Net between March and July 2004.(4) The Government estimates the Safety Net will benefit 1.5 million Australians in 2006 , even after the increased thresholds come into effect.(5)

Notwithstanding its popularity with patients, the Medicare Safety Net has been the most contentious of the Medicare Plus reforms introduced in March 2004. Much of the controversy over the Safety Net has centred around its cost, which has been considerably higher than originally anticipated. A timeline of the blow-out in the cost of the Safety Net is shown in Table 1.

When the Safety Net was first proposed in November 2003, the Government intended setting the threshold levels at $500 for concession card holders and other low income earners, and $1000 for other individuals and families (the new threshold levels proposed by this Bill). However, as part of its negotiations with independent senators to secure the passage of the Medicare Safety Net legislation through the Senate in March 2004, the government agreed to lower the annual thresholds it had originally proposed to $300 for concession card holders and low income families, and $700 for all other individuals and families, respectively. The anticipated cost of the Safety Net over the four years to 2006-07 as a result of the lower threshold levels was $440 million.(6)

However, in the first six months after it was introduced, more people qualified for the Medicare Safety Net than the Government had anticipated: it was initially estimated that around 450 000 individuals and families would benefit from the Safety Net in any one year, yet almost 650 000 people qualified for the Safety Net in the first few months of its operation alone.(7) As a result, figures released by the Treasury during the federal election campaign in September 2004 showed that the cost of the Medicare Safety Net would be more than double the approximately $120 million originally forecast for the 2004 05 financial year.(8) Subsequently, the total cost of the Safety Net over the out-years would have blown out to over $1 billion more than double the original projections.(9) Nonetheless, during the election campaign the Health Minister, Mr Abbott, famously gave a rock-solid, iron-clad guarantee that the thresholds would be maintained at their existing levels.(10)

In April 2005, the Government provided figures showing a further increase in projected Safety Net expenditure: the Prime Minister told ABC radio that if the current threshold levels were maintained, the cost of the Safety Net would be $1.65 billion over the next four years (to 30 June 2009) almost four times the original projections.(11)


Table 1: Timeline of increases in cost of extended Medicare Safety Net

Date

Estimated cost

November 2003

The Safety Net as originally proposed (with $500 and $1000 thresholds) was expected to cost $266.3 million in the first four years of its operation (2003 04 to 2006 07)(12)

March 2004

The revised four-year cost of Safety Net (as a result of reduced thresholds negotiated with independent senators) is estimated at $440 million (for the years 2004 05 to 2007 08)(13)

September 2004

Treasury figures show the cost of the Safety Net as $142 million higher than the approximately $120 million originally forecast for the 2004 05 financial year.(14) Subsequently, the cost over four years (2004 05 to 2007 08) was be estimated to have blown out to approximately $1.05 billion(15)

April 2005

The government confirms that the cost of the Safety Net if the current threshold levels were maintained would be $1.4 billion over the period to 30 June 2008, and $1.65 billion to 30 June 2009. Accordingly, the government announced that it will move to increase the Safety Net thresholds(16)

 

Threshold changes announced in the 2005 06 budget

As a result of the higher than expected cost of the Medicare Safety Net in its first year of operation, the government announced in April 2005 that it would increase the Medicare Safety Net threshold levels to the levels originally proposed ($500 and $1000 respectively) to maintain [the Safety Net s] sustainability .(17)

The threshold changes are expected to generate savings of just under $500 million over the next four years, as shown in Table 2.

Table 2: Estimated savings as a result of reduced Safety Net thresholds(18)

2005 06 ($m)

2006 07 ($m)

2007 08 ($m)

2008 09 ($m)

Total ($m)

-50.728

-136.057

-150.670

-161.672

-499.127

(The amount of $50 million for 2005 06 reflects that the changed threshold amounts will take effect half way through the financial year.)

As a result of the anticipated savings from the increased thresholds, the total cost of the Safety Net over the next four years should be approximately $1.15 billion (though the Government has not released an official revision, disaggregated by year, of the total cost of the Safety Net since March 2004).

How many people will be affected by the threshold increases?

According to information provided by the Department of Health and Ageing during Senate Estimates hearings in June, if the current thresholds were maintained, in 2006 2.5 million people would qualify for the Safety Net. Under the increased threshold levels, approximately 1.5 million people are expected to qualify for the Safety Net. Therefore, 1 million less people are expected to qualify for the Safety Net as a result of the increased thresholds.(19)

The Department has not released any figures regarding the breakdown of how many people will be affected by the increased thresholds at each of the threshold levels.(20)

Effectiveness of increasing the thresholds: commentary and analysis(21)

By making it more difficult to qualify for the Safety Net, the increases to the Safety Net thresholds proposed by this Bill will certainly help to rein in expenditure on the Safety Net in the short term. According to the Government s modelling, the changes will reduce projected expenditure on the Safety Net over the next four years by almost one-third, though the total cost of the Safety Net will still be more than double that projected in March 2004 when the Safety Net was introduced (see above). However, the structure of the Medicare Safety Net means that the effects of the increases to the Safety Net thresholds on total expenditure on the scheme in the medium and longer terms are more uncertain.

As outlined above, under the Medicare Safety Net, 80 per cent of out-of-pocket (non-hospital) medical costs are reimbursed once a patient or her/his family reaches the relevant threshold in a calendar year. Therefore, like other demand-driven programs (such as Medicare rebates and drug subsidies under the PBS), once the parameters of the Safety Net s operation are set, expenditure on the Safety Net effectively becomes open-ended. However, unlike other demand-driven programs, benefits under the Safety Net are not tied to any price controls or price signals: that is, unlike regular Medicare benefits which are tied to the amount of the Medicare schedule fee (a fee set by the government in consultation with the medical profession), Safety Net benefits are entirely contingent on the amount charged by the practitioner.

In the case of specialists services or expensive diagnostic tests, medical practitioners fees often bear little relationship to the Medicare schedule fee. Proponents of the Safety Net argue that this is precisely its strength: that is, because Medicare schedule fees have not kept pace with the cost of providing these kinds of services, it is important that a scheme like the Safety Net exists to protect patients, particularly those with chronic conditions, from an accumulation of high out-of-pocket costs which are associated with these kinds of services.(22) However, because Safety Net benefits are effectively unregulated, from a sustainability point of view this is a potential problem because Safety Net benefits are uncapped (both in percentage and aggregate terms). With such an uncapped structure, once a patient has reached the relevant threshold, 80 per cent of the patient s out-of-pocket costs are reimbursed by the Safety Net, even if charges exceed the norm, for example if a GP were to charge $100 for a standard consultation, or an obstetrician $10 000 for the management of a pregnancy. It is this aspect of the Safety Net that is, the fact that benefits are both uncapped and unregulated that has been most criticised by opponents of the Safety Net scheme, such as the Labor opposition and several commentators in the health sector.(23)

Of course, market forces should usually prevent doctors from charging excessively high prices. The point is that, in a scheme where the level of benefit is not tied to any price signal, and therefore effectively unregulated, it is potentially extremely difficult to control the overall cost of the scheme. This is arguably what led to the higher-than-anticipated cost of the Safety Net following its introduction last year. Accordingly, if it is the case that the blow out in the cost of the Safety Net was the result of these structural factors, adjusting the levels of the Safety Net thresholds may just amount to a tinkering at the edges which will not address sustainability issues in the long term.

Position of significant interest groups

The Government s decision to raise the Medicare Safety Net thresholds has attracted widespread criticism from within the health sector.

For example, the Australian Medical Association (AMA), a staunch supporter of the Medicare Safety Net, has been strongly critical of the government s decision to increase the Safety Net thresholds, describing the decision as a great disappointment , because the young families out there that are struggling struggling to meet medical costs, and who are relying on that safety net to deliver security and affordability, now feel as though they ve been cheated . Former AMA President Bill Glasson argued that the existing Safety Net thresholds should have been left in place for at least 12 to 18 months longer to determine whether or not there were any inflationary pressures on the system before the Safety Net was changed.(24)

Catholic Health Australia (CHA), which represents Catholic health care providers, has described the threshold increases as a cruel hit on families. According to CHA s chief executive Francis Sullivan, the threshold increases are the equivalent of a $200-a-year health tax and for most people it will be difficult for them to achieve the Safety Net, so it just drains household budgets without compensation .(25) Likewise, the president of the Australian Council of Social Service, Andrew McCallum, has said that the threshold changes are really going to hurt those who are sick and poor .(26)

Even commentators who were lukewarm on the Safety Net at the time of its introduction because of its potential to increase health inflation, such as the Australian Consumers Association (ACA), have been critical of threshold increases. Nicola Ballenden, the ACA s health spokesperson, has said that the threshold changes will put the safety net out of reach of more consumers, you will need to be wealthier to benefit from it, and it will do nothing to stop [health] inflation .(27)

Tim Woodruff, from the Doctors Reform Society, who criticised the Safety Net when it was introduced for effectively providing a blank cheque to [specialists to] increase co-payments ,(28) has argued that the threshold changes demonstrate the Safety Net s structural flaws. According to Dr Woodruff, in the eight months between July 2004 and March 2005, Medicare benefits rose by 15 per cent, at least partly as a result of the inflationary pressures created by the Safety Net.(29) Accordingly, Dr Woodruff argues that as a result of the threshold increases the main beneficiaries of the Safety Net will be the rich that is, those who can most afford to pay the high specialists bills which will make them most likely to qualify for the Safety Net in the first place.(30)

ALP/Australian Democrat/Greens policy position/commitments

Labor opposed the introduction of the Safety Net last year, arguing that it would have an inflationary effect on health costs,(31) and said last year that it would abolish the Safety Net if elected to government.(32) Labor has been strongly critical of the Government s decision to increase the Medicare Safety Net thresholds, though its criticism has focused on the fact that the decision to increase the thresholds represents a broken election promise as mentioned above, during the election campaign Health Minister Tony Abbott gave a guarantee that the Safety Net thresholds would not be changed if the Government was re-elected.(33)

The Australian Democrats, who, contrary to many media reports opposed the Safety Net in its current form when it was introduced in March last year, have described the threshold changes as having ignored the need for real reform in health and instead shifted costs onto patients .(34) According to Democrats Leader and health spokesperson Lyn Allison, the Howard Government s Medicare Safety Nets were unsustainable from the outset and now the sick will pay for the Government s monumental backflip .(35)

Similarly, Greens Senator Kerry Nettle has said that the increase in the Safety Net thresholds is evidence of a deeply flawed policy : The government was warned before it implemented the policy that it was inflationary No amount of fiddling with it will overcome its inherent flaws .(36)

Main Provisions

Schedule 1 Extended medicare safety-net amounts (if any)

The Bill will make the following changes to the Health Insurance Act 1973:

  • items 1 and 3 change the nominal threshold amount for concessional individuals and families, and families in receipt of Family Tax Benefit (A), from $300 to $500

  • item 2 changes the nominal threshold amount for all other individuals and families from $500 to $1000

  • item 4 changes the commencement date for annual indexation for both threshold levels to 1 January 2007 (since the new threshold amounts will take effect from 1 January 2006, these amounts do not need to be indexed in 2006. Accordingly, item 4 resets the indexation arrangements to commence on 1 January 2007 one year after the new nominal thresholds come into effect), and

  • item 5 applies the new threshold amounts to medical expenses incurred on or after 1 January 2006. The current threshold levels continue to apply for medical expenses incurred in 2005 (or earlier).

Concluding Comments

In the short term, the increases to the Medicare Safety Net thresholds contained in this Bill will have the desired effect of stemming expenditure on the Safety Net by making it more difficult for patients to qualify for Safety Net benefits.

However, the effectiveness of the threshold increases in containing Safety Net expenditure in the medium to longer terms is uncertain. Arguably, the reason expenditure on the Safety Net has blown out to the extent that it has since March 2004 is not a result of the threshold levels. Rather, it is a result of the Safety Net s structure, whereby Safety Net benefits are not tied to any price signals that is, they are uncapped and effectively unregulated. This being the case, increasing the thresholds will limit the cost of the Safety Net in the short term but controlling aggregate expenditure in the medium-longer term may still prove to be problematic.

Endnotes

  1. In the enabling legislation (the Health Insurance Act 1973), the term extended Medicare Safety Net is used because there was a Safety Net already in existence when the Safety Net that is the subject of this Bill (the Safety Net introduced as part of Medicare Plus) came into existence. Under the existing Medicare Safety Net, Medicare benefits increased from 85 per cent (the usual level of rebate) to 100 per cent of the Medicare Schedule fee (the recommended fee set out in the Medicare Benefits Schedule), once patients reached certain thresholds for accumulated out-of-pocket expenses. The difference between the old (existing) and new (extended) Safety Nets is that the old Safety Net provided additional benefits only up to the level of the Schedule fee, whereas the new or extended Safety Net provides reimbursement for 80 per cent of the total out-of-pocket cost. This can be substantially higher than the Schedule fee, as there is no obligation for doctors to charge the Schedule fee. The old or existing Safety Net is still in place: patients can claim benefits under both Safety Nets. In this Bills Digest, the terms Medicare Safety Net and Safety Net refer to the new or extended Medicare Safety Net.

  2. Patients can take out private health insurance to insure themselves for the cost of in-hospital treatment as private patients (hospital treatment is provided to public patients free of charge).

  3. Health Insurance Commission (HIC) website, see: http://www.hic.gov.au/yourhealth/our_services/msn/about_msn.htm (accessed 3 August 2005).

  4. Tony Abbott, Minister for Health and Ageing, Medicare Safety Net providing real benefits to 650,000 Australians , Media release, 16 September 2004, see: http://www.liberal.org.au/documents/Sept16_Media_Release_-_
    Medicare_Safety_Net_providing_real_benefits_to_650000_Australians.pdf
    (accessed 3 August 2005).

  5. Tony Abbott, Minister for Health and Ageing, Health Budget Responsible and Sustainable , Media release, 10 May 2005, see http://www.health.gov.au/internet/budget/publishing.nsf/
    Content/health-budget2005-hbudget-hmedia01.htm
    (accessed 3 August 2005).

  6. Portfolio Budget Statements 2004 05 Health and Ageing Portfolio, p. 107, see http://www.health.gov.au/internet/wcms/publishing.nsf/Content/health-budget2004-pdf-out2-cnt.htm/$FILE/out2.pdf (accessed 8 August 2005). The $440 million figure is derived by adding the $266.3 million already allocated to the Safety Net under the Fairer Medicare package with the figures for 2004 05 to 2006 07, plus the additional $12.9 million for 2003 04.

  7. Tony Abbott, Medicare Safety Net providing real benefits to 650,000 Australians , op. cit.

  8. Department of the Treasury and Department of Finance and Administration, Pre-Election Fiscal and Economic Outlook 2004, September 2004, p. 7, see http://www.treasury.gov.au/documents/886/PDF/02_Main_Body.pdf (accessed 3 August 2005).

  9. This estimate is derived by multiplying $262 million (the total anticipated cost of the Safety Net in 2004 05 as a result of the revised expenditure estimates released by Treasury) by four (the number of years in the out-year period.

  10. Tony Abbott, Minister for Health and Ageing, interviewed in Doctoring the figures: rorting of Medicare by health professionals , Four Corners, ABC TV, 6 September 2004.

  11. John Howard, Prime Minister, Interview with Stephanie Kennedy, AM, ABC Radio, 15 April 2005, see http://parlinfoweb.parl.net/parlinfo/Repository1/Media/radioprm/0GRF60.doc (accessed 8 August 2005).

  12. Portfolio Additional Estimates Statements 2003 04 Health and Ageing Portfolio, p. 57, see http://www.health.gov.au/internet/wcms/publishing.nsf/650f3eec0dfb990fca
    25692100069854/419dae805545dd69ca256f180050056f/$FILE/ATTBIVE0/paes.pdf
    (accessed 8 August 2005).

  13. Portfolio Budget Statements 2004 05 Health and Ageing Portfolio, op. cit., p. 107. See endnote 6.

  14. Department of the Treasury and Department of Finance and Administration, Pre-Election Fiscal and Economic Outlook 2004, op. cit., p. 7.

  15. See endnote 9.

  16. John Howard, Interview with Stephanie Kennedy, op. cit.; see also John Howard, Prime Minister, Interview with David Speers, Sky News, Sky TV, 14 April 2005, see http://www.pm.gov.au/news/interviews/Interview1323.html (accessed 8 August 2005).

  17. ibid.

  18. Explanatory Memorandum, p. 1.

  19. Senate Community Affairs Legislation Committee, Estimates (Budget Estimates) Health and Ageing Portfolio, 1 June 2005, p. CA 18.

  20. It undertook to do so on notice during the June Estimates hearings but these figures have not been provided to date.

  21. A Parliamentary Library Research Brief examining debates around the Medicare Safety Net in more detail is planned for publication in the near future.

  22. See for example, AMA, Revised Medicare Plus Better safety net and access to dental care but more complexity on red tape , Media Release, 10 March 2004, see http://www.ama.com.au/web.nsf/doc/WEEN-5WX7A8 (accessed 3 August 2005).

  23. See, for example, Julia Gillard MP, Shadow Minister for Health, Transcript of doorstop interview, 11 March 2004, Parliament House, Canberra, see http://parlinfoweb.parl.net/parlinfo/Repository1/Media/pressrel/IKWB61.pdf (accessed 3 August 2005); Charles Livingstone, The truth about Abbott s safety net , The Age, 25 September 2004, p. 11; Beth Quinlivan, Medicare cuts and artery , Business Review Weekly, 11-17 November 2004, p. 26.

  24. Dr Bill Glasson, AMA President, Transcript Changes To Medicare Safety Net, 14 April 2005, see
    http://www.ama.com.au/web.nsf/doc/WEEN-6BFBWV (accessed 29 July 2005).

  25. Misha Schubert, Medicare cuts to hit 400,000 , The Age, 15 April 2005, p. 1.

  26. Mark Metherell, PM backtracks on safety net threshold commitment , The Sydney Morning Herald, 15 April 2004, p. 7.

  27. Misha Schubert, Medicare cuts to hit 400,000 , op. cit.

  28. Sophie Morris, Safety net package passed on a bribe , The Australian, 11 March 2004, p.4.

  29. Mark Metherell, PM backtracks on safety net threshold commitment , op. cit.

  30. Doctors Reform Society, Patients to fall through Medicare Safety Net , Media release, 14 April 2005,
    http://www.drs.org.au/media/2005/media150405.htm
    (accessed 2 August 2005).

  31. Julia Gillard MP, Shadow Minister for Health, Transcript of doorstop interview, 11 March 2004, op. cit.

  32. Mark Latham, Leader of the Opposition, The Howard Government's record: John Howard and Tony Abbott have neglected our hospitals and health care , Media release,22 September 2004, see http://parlinfoweb.parl.net/parlinfo/Repository1/Media/pressrel/H1VD60.pdf (accessed 3 August 2005).

  33. Julia Gillard MP, Shadow Minister for Health, Transcript of doorstop interview, 26 April 2005, Parliament House, Canberra, see http://parlinfoweb.parl.net/parlinfo/Repository1/Media/pressrel/EGVF60.pdf (accessed 3 August 2005).

  34. Senator Lyn Allison, 19th Century Health Budget Fails 21st Century Needs , Media release, 11 May 2005, see http://parlinfoweb.parl.net/parlinfo//Repository1/Media/pressrel/9I1G60.pdf (accessed 3 August 2005).

  35. Senator Lyn Allison, Threshold Creep Will Not Address Health Failings , Media release, 15 April 2005, see http://www.democrats.org.au/news/index.htm?press_id=4509&display=1 (accessed 3 August 2005).

  36. Senator Kerry Nettle, Medicare safety net rise part of flawed policy , Media release, 14 April 2005, see http://parlinfoweb.parl.net/parlinfo/view_document.aspx?ID=103209&TABLE=pressrel&TARGET (accessed 3 August 2005).

Contact Officer and Copyright Details

Angela Pratt
9 August 2005
Bills Digest Service
Information and Research Services

This paper has been prepared to support the work of the Australian Parliament using information available at the time of production. The views expressed do not reflect an official position of the Information and Research Service, nor do they constitute professional legal opinion.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2005

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by members of the Australian Parliament in the course of their official duties.

Published by the Parliamentary Library, 2005.

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