Medicare - Background Brief

Current Issues

E-Brief: Online Only issued 9 May 2003; last updated 29 October 2004

Amanda Biggs, Information/E-links
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 Schedule fee).


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 dissolution election.

Original Purpose

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 1978.

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 administrative costs'.

Medicare Cost/Financing

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.

The latest Department of Health and Ageing's Annual Report shows Commonwealth expenditure on Medicare for 2002-03 totalled $19.930 billion. 

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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 changes.



February 1984

Medicare introduced
Bulk billing restored
Rebate at 85 per cent, maximum gap $10
Free public hospital
Medicare Levy
set at 1 per cent of taxable income

November 1986

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

November 1991

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

March 1992

Co-payment changes abolished after only 3 months

July 1993

Medicare levy increased to 1.4 per cent

July 1995

Medicare levy increased to 1.5 per cent

July 1996

0.2 per cent surcharge on Medicare levy for gun buy back scheme (till June 1997)

July 1997

Medicare Levy Surcharge of 1 per cent for those with household income over $100,000 who do not have private health insurance

Private 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


Lifetime 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 the measures.

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 treatment.

Medicare Plus announced in November includes proposed changes to the Safety Net and incentives for GPs (not implemented until 2004)


From 1 February, each bulk-billed GP service to concession card holders and children to attract an extra $5 incentive payment to the GP.

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 (various).

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Further Reading

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, Melbourne, 1978-1980.


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 Schedule fee

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 including cleft 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). 

HIC 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.


Schedule Fee
(Standard GP consult)

85% rebate

Average patient contribution
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 apply).

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 and Norway. 

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 the Health 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 fee.  

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 owing. 

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 charge. 

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 HIC

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 website

Safety net summary


Who it is for

How it is calculated

Benefit to you


Commonwealth concession card holders
Families receiving FTB(A)

Out-of-pocket costs

80% of out-of-pocket costs


All Medicare card holders

Out-of-pocket costs

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.

Medicare Levy

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 expenditure.


Medicare Levy Surcharge

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 link above.

Key Statistics

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 Annual Report.

Bulk Billing

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 the patient.

Quarterly Medicare 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.

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