What can be done about the growing cost of health care in Australia?

 The sustainability of Australia’s health system is becoming a key concern for Australian governments, along with those in many other advanced economies. But, with growing demand for high quality health care, an ageing population and rapid advances in medical technology, what can be done to keep a lid on health expenditure? This recently published Parliamentary Library Research Paper outlines the key mechanisms the Australian government has to control health care spending, and it proposes some potential options for reform.

In a recent speech on the sustainability of the health system, the Finance Minister, Penny Wong, highlighted the problem policymakers now face: health care expenditure is projected to continue to rise, but the pool of taxpayers is shrinking. According to The Treasury’s 2010 Intergenerational Report, health care will consume about two thirds of the projected increase in government spending over the next 40 years if current trends continue. Clearly, this is not going to happen because changes will be made. But what changes?
Slowing the growth in health care expenditure is not easy (this earlier Flagpost points out some of the challenges). Governments, however, do have some tools at their disposal. They can:
  • ensure governments fund only the highest quality and most effective health care interventions (this involves comparing different types of treatments for the same condition and ‘de-funding’ treatments found to be relatively ineffective);
  • pay health care providers in different ways (there are various options, but experts consider that paying salaries, applying strict budgets and paying providers a set amount for each patient under their care are some of the best ways of containing expenditure);
  • impose some costs on individuals (there is a major downside to this if it means people do not use necessary health care services when they need them);
  • exert greater control over the capacity of the health system (for instance, the number of health care facilities and health professionals); and
  • stimulate competition between the public and private sectors (however considerable care needs to be taken that competition does not add to costs and compromise quality).
All of these tools are currently used in Australia to control the growth in government health expenditure, but some are relied upon more heavily than others. Successive governments have tended to rely heavily on co-payments – imposing costs on individuals – to control expenditure growth. There is growing evidence that this is detrimental for many people on low incomes, who, incidentally, often have the greatest need for care. For this and other reasons, a high level review of Australia’s co-payment policies appears justified.

At the other end of the spectrum, governments have paid relatively little attention to the way decisions about major health infrastructure (for example hospitals, primary health care clinics and diagnostic imaging machines) affect the growth in health expenditure. At present, there are multiple funding processes in operation, making it difficult, if not impossible, to monitor the overall impact health infrastructure decisions have. This is another area ripe for reform.

The reform agenda ahead is challenging, there is no doubt. But as Minister Wong explained in her recent speech, ensuring we have strong and sustainable health system ‘demands that we look ahead – that we consider how today’s priorities shape tomorrow’s future.’ It requires ‘making the right choices now, [so] we can ensure that future governments continue to provide the level of health care Australians deserve.’


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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