Out-of-pocket payments for health care—finding a way forward

Roy Harvey, Social Policy

Key issue
Out-of-pocket payments for health care mean that some low income people do not access needed health care and many experience significant financial difficulties in paying for health services. Changes to health funding arrangements may help to reduce the barriers to better health care for this group, but it appears that more needs to be done.

What are the issues?

In 2009, the National Health and Hospitals Reform Commission noted increasing concerns that a two tiered health system was evolving in Australia; a system under which people who did not have private health insurance faced unacceptable delays in accessing certain services.

Reports have warned that high out-of-pocket costs prevent people with long-term or chronic conditions from seeking health care and place financial strain on low income consumers.

An increasing number of people delay visits to medical practitioners or do not fill prescriptions because of cost considerations.

While bulk-billed services under Medicare provide about 80% of general practitioner, pathology and imaging services ‘free’, people with chronic conditions often need services that are not funded by Medicare, such as aids and appliances, allied health services, pain relief and massage.

The lack of affordable dental care for low income people, and the negative consequences on dental and general health, has been reported for decades.

Waiting times for significant elective surgery are a continuing problem for public patients, partly as a result of specialists moving to private hospitals. While people with private health insurance can go to private hospitals, they may incur significant out-of-pocket expenses to do so.

How much is spent out of pocket?

In 2010–11, the Australian Institute of Health and Welfare (AIHW) estimated that $24.3 billion of health spending came directly from the pockets of consumers; an average of $1,082 per person. Out-of-pocket spending in Australia was about twice as high as in the United Kingdom and New Zealand, but only 75% of out-of-pocket spending in the United States and 55% of that spent by the Swiss.

Australian spending in dollar terms is the fifth highest in the Organisation for Economic Co-operation and Development (OECD), but as Australia also has the fifth highest GDP per person in purchasing power parity terms, this level of spending is not unexpected.

The AIHW reported that, in 2010, Australians spent 3.2% of Household Final Consumption Expenditure on out-of-pocket health costs. In ten OECD countries spending was higher, while 12 spent less.

What is the money spent on?

The figure below shows the major components of out-of-pocket expenditure and their growth over the last decade.

Figure 1: Out-of-pocket payments per person, by type of expense, in current prices, selected yearsFigure 1: Out-of-pocket payments per person, by type of expense, in current prices, selected years

Source: AIHW, Health expenditure: Australia 2010–11

‘Other medicines’ is the major out-of-pocket expenditure category, with $8 billion spent in 2010-11; expenditure has increased dramatically over the last decade. Over-the-counter medicines represent more than two thirds of this.

Out-of-pocket spending on dental services in 2010–11 was $4.6 billion. The National Partnership for adult public dental services reform package has since been introduced and will provide approximately $750 million a year over six years to improve the dental health of children and low income people. The package will improve access and is likely to reduce costs.

While the level of bulk-billing for medical services has increased, out-of-pocket payments continue to rise, mainly due to increasing specialist fees. In the December quarter 2012, many specialists were charging the privately insured more than twice the Medical Benefits Schedule fee for in-hospital services. Their fees totalled $254 million: Medicare reimbursed patients $67 million, private health insurance paid $47 million and patients paid the gap of $140 million.

The Extended Medicare Safety Net provides assistance to meet out-of-pocket medical costs, but evidence suggests that most of its benefits go to higher income groups who can afford to pay these costs.

Aids and appliances represent a major cost outlay for people with chronic diseases, but the National Disability Insurance Scheme (NDIS) may improve access and reduce costs over time.

Out-of-pocket payment to access hospital services has seen the largest proportional increase in expenditure. Almost all of the $2.5 billion spent in 2010–11 was by private patients in private and public hospitals.

Payments for the services of allied health and complementary or alternative health practitioners have fallen in the latter half of the decade. This is possibly as a result of the Chronic Disease Management initiative introduced in 2007. The NDIS may provide greater access to these services for people with chronic conditions.

The Pharmaceutical Benefits Scheme (PBS) Expanded Accelerated Pricing Disclosure (EAPD) policy is expected to result in significant reductions in the price of PBS drugs over the next few years. This will deliver savings to both consumers and the Government.


Improvements are expected from the initiatives described above. Other areas that could be investigated include:

  • the use of non-PBS medicines
  • using the Extended Medicare Safety Net to better target people in high need
  • the private health insurance subsidy for specialist services in hospitals to improve support for privately insured people and to minimise the impact on waiting times for public patients in public hospitals and
  • improving access to allied health services through the hospital and primary care networks.

Much of the understanding of the specific needs of disadvantaged groups comes from a relatively small number of surveys and case studies. A systematic study would give a more accurate picture.

Further reading

A Biggs, ‘Health spending: patients bearing higher costs’, FlagPost weblog, 2 May 2013.

Consumer Health Forum, ‘Australian healthcare–out of pocket and out of date’ Journal of the Consumer Health Forum of Australia, 12, April 2013.

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