Medicare and health system challenges

Amanda Biggs, Social Policy

Key issue
Medicare was a key election issue with concerns about privatisation, bulk billing incentives and the rebate freeze capturing attention. While these remain pertinent, other issues affecting Medicare and the health system are also likely to come before policy makers in this term of parliament.

Medicare was a high profile issue during the election—claims that the Government was intending to privatise the Medicare payments system, the Medicare rebate freeze and changes to bulk billing incentives all generated significant debate. The Prime Minister subsequently ruled out major changes and committed to Medicare’s full retention. Notwithstanding this commitment, Medicare and the health system will face a number of challenges during this term of parliament.

Cost pressures on the Commonwealth

The Australian health system performs comparatively well internationally—life expectancy is the sixth highest among Organization for Economic Cooperation and Development (OECD) countries. At 8.8 per cent of GDP, Australia's total expenditure on health (including government and private sources) remains close to the OECD average of 8.9 per cent. But it is expected to rise. The Intergenerational Report 2015 forecasts that Commonwealth spending on health is projected to grow from 4.2 per cent of GDP to 5.5 per cent by 2054–55. This growth will be driven largely by non-demographic factors: higher incomes (which drive consumption), health sector wage increases and technological change. This means that keeping health spending efficient and sustainable over the period will be a key challenge.

Out of pocket costs

While the 2014–15 Budget’s $7 patient co-payment on bulk billed services (with exemptions) has been abandoned, a $5 co-payment on subsidised medicines remains. Proposals to increase patient out-of-pocket costs, however, raise concerns that high costs deter people from seeking needed health care. Patient out-of-pocket costs account for around 20 per cent of overall health expenditure—a rate close to the OECD average, but considerably higher than New Zealand and the United Kingdom. According to the Australian Bureau of Statistics, nationally around five per cent of people who needed to see a general practitioner (GP), delayed or did not go due to cost. In some regions the rate was almost twice as high.

Some argue the effect of the Medicare rebate freeze introduced in 2013–14 and extended to 2020 in the most recent Budget, is a ‘co-payment by stealth’. Doctor groups such as the Australian Medical Association warn that the freeze is unsustainable and will force doctors to abandon bulk billing and pass costs on to patients. So far, the national bulk billing statistics show bulk billing rates for GPs remain high. Nevertheless, reports of GPs abandoning bulk billing and patients attending emergency departments for GP-treatable conditions are emerging.

Parliament’s capacity to overturn the rebate freeze is limited. It can move to disallow the regulations that specify the fees for Medicare services. But disallowance would revive the previous regulation which specifies fees that have themselves been frozen at the same level. A further complication is that the regulation itself has a finite life—expiring after 12 months and 15 sitting days.

Chronic disease

Another challenge will be addressing the rise of chronic disease. New approaches, such as the Health Care Home model as proposed by the Primary Health Care Advisory Group (see article elsewhere in the Briefing Book), warrant consideration. A greater emphasis on prevention has also been urged. One option that has been suggested is a sugar tax. In 2014, Mexico imposed a tax on sugary drinks and other countries, including the United Kingdom (UK), have begun to follow. Early evidence suggests the Mexican tax has reduced soft drink consumption, but evidence of impacts on weight is yet to emerge.

Improving efficiency

Meanwhile, initiatives to improve efficiency and reduce wastage in the health system continue. The Medicare Benefits Schedule Review Taskforce is reviewing the 5,700 Medicare funded services against best clinical practice and removing services for which the evidence base is poor. The interim report of this Taskforce recommended the removal of 23 items, with more recommendations likely by year’s end, when its next report is due. However, in the current political climate any changes to Medicare are likely to face considerable scrutiny, particularly proposals for further deletions.

Role of private health insurance

Reforms to private health insurance may come before the Parliament, following the recent consultation process. Improving consumer value and providing better product information are likely to be a major focus for the Government. Meanwhile, insurers will be keenly pursuing policies that address their cost pressures, such as reforming the pricing of prostheses. However, proposals for private health insurers to play a greater role in primary care—such as in chronic disease management—could be contentious. Doctor’s groups remain wary, and some are concerned it could lead to the ‘Americanisation’ of the health system, and the erosion of the Medicare principle of universality.

Unpassed budget measures

Health measures from the 2016–17 Budget will also need to be considered. This includes the proposal to replace the means-tested Child Dental Benefits Schedule funded through Medicare, with a new state-run public dental scheme to be established under a National Partnership Agreement with the states and territories. Legislation to enact this was introduced in May but lapsed when Parliament was dissolved. In addition, previously presented but unpassed measures from earlier budgets, such as the 2014–15 budget proposal for a single Medicare Safety Net may be re-submitted. This legislation was introduced in 2015, but lapsed at prorogation.

Rural and regional challenges

Providing accessible and affordable health care to residents of rural and regional areas remains a high priority for many policy makers. Many of these areas lack ready access to Medicare funded services as a result of the distribution of the medical workforce. The health problems of Aboriginal and Torres Strait Islander people, who face particular sociodemographic, cultural and language barriers may also gain greater consideration in the new Parliament with the election of several Indigenous members and senators.

Mental health

Improving the care of those with mental illnesses is another pressing issue. The National Mental Health Commission proposed the development of a new ‘stepped care’ model providing a range of help options of varying intensity to match people’s needs. But mental health reform will be challenging. Questions have been raised over the role of Primary Health Networks which will commission mental health services and how these will integrate with other services, with concerns that some patients may fall through the gaps. In addition, the National Disability Insurance Scheme trials have raised concerns in the mental health sector around workforce issues, funding and the pace of change the sector faces.

Hospital funding

It will be important to resolve the future of public hospital funding after 2020, when the recently signed COAG agreement expires. The Turnbull Government’s decision to reverse the contentious 2014–15 budget measure that replaced activity based funding with CPI and population growth as the basis for hospital funding for the life of the agreement, was welcomed by many. But future funding arrangements will still need to be agreed between the Australian Government and the states and territories.


The Parliament passed significant reforms to Pharmaceutical Benefits Scheme (PBS) pricing in 2015 to coincide with the signing of the Sixth Community Pharmacy agreement. While some issues may not be revisited until the signing of the next agreement in 2020, the listing of new medicines will continue to impose cost pressures on the PBS. The review of pharmacy remuneration and regulation, which is currently underway, may also reinvigorate debate on issues such as the Pharmacy Location Rules that regulate where pharmacies can operate.

These, and other health issues, look likely to feature prominently in the work of the upcoming parliament.

Further reading

Amanda Biggs, Medicare: a quick guide, Research paper series, 2016–17, Parliamentary Library, Canberra, 2016.

Alex Grove, The Pharmaceutical Benefits Scheme: a quick guide, Research paper series, 2015–16, Parliamentary Library, Canberra, 2016.


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