Budget Review 2017–18 Index

Amanda Biggs

Medicare is a major focus in this year’s Budget with a significant package of measures announced under the name Guaranteeing Medicare. This focus on Medicare is part of the government’s Long-Term National Health Plan, which lists four pillars: guaranteeing Medicare and the Pharmaceutical Benefits Scheme (PBS); supporting hospitals; prioritising mental and preventive health; and investment in medical research.[1]

Removal of Medicare rebate indexation freeze

As widely expected, the freeze on indexation of Medicare rebates is being lifted—albeit in phases—at a cost of $1.0 billion over four years.[2]

Since Medicare’s introduction in 1984, fees have been subject to annual indexation.[3] The freeze was first introduced by Labor in the 2013–14 Budget as a temporary measure to July 2014. The Coalition reimposed the freeze in MYEFO 2014–15 and then extended in subsequent budgets to July 2020.[4] It was forecast to achieve total savings of around $3.9 billion to 2020.[5] The reintroduction of indexation will be applied in phases:

  • From 1 July 2017, bulk billing incentives for general practitioners (GPs) will be indexed
  • From 1 July 2018, standard GP consultations and specialist attendances will be indexed
  • From 1 July 2019, specialist procedures and allied health services will be indexed
  • From 1 July 2020, certain targeted diagnostic imaging services will be indexed.

The measure follows agreements that have been reached with the Australian Medical Association (AMA) and the Royal Australian College of GPs (RACGP) to ensure their support for the continuation of the Medicare Benefits Schedule (MBS) Review (see below) and the proposed national rollout of the digital My Health Record.[6]

While the freeze was controversial, its impact on patient access was less clear. Rates of GP bulk billing (that is, free GP services) remained steady until recently.[7] But patients who were not bulk billed experienced an increase in the average payment they made for the service.[8]

Stakeholders have broadly welcomed the resumption of indexation. The Consumers Health Forum (CHF) noted that it ‘should reduce pressure on Australia’s high out of pocket health costs’, but warned that some families may face increased co-payments for at least another year.[9] Significantly, professional groups have praised the Minister for Health for his consultative approach.[10] Maintaining positive relations with these groups will be important for progressing other key health initiatives. This measure will not require legislation.

Medicare Guarantee Fund

From 1 July 2017 the Government will establish the Medicare Guarantee Fund, a special account to be credited with revenue from the Medicare levy and personal income tax receipts, which the Government says will fund the MBS and the Pharmaceutical Benefits Scheme (PBS).[11] In 2017–18, some $33.8 billion will be credited to the Fund, comprising $12.1 billion from the Medicare levy and the balance from personal income tax receipts.[12] Although revenue from the Medicare levy in 2016–17 is estimated to be $15.6 billion, which is higher than the figure due to be credited to the Fund, this includes $3.9 billion that is already earmarked for the National Disability Insurance Scheme (NDIS).[13]

Together, the MBS and the PBS cost the Australian Government nearly $34.2 billion in 2016–17.[14]

The creation of the Fund has been viewed by some as part of a political strategy to refute Opposition claims that the Coalition is not committed to Medicare.[15] Annual contributions to the Fund will be updated at every budget update[16] which the Government claims will provide greater transparency around MBS and PBS costs.[17] Stakeholder comment on the Fund has not been extensive, although this will likely increase when the legislation establishing the fund is presented to Parliament.

Medicare Benefits Schedule (MBS) Review and Medical Services Advisory Committee

Funding of $44.2 million over three years has been allocated in the Budget to continue the work of the MBS Review Taskforce which is reviewing the 5,700 items on the MBS for clinical appropriateness.[18] Some $34.3 million in funding was provided over two years in the 2015–16 Budget for the MBS review and a related measure, bringing total funding so far to $78.5 million.[19] Stage one of the Review process resulted in 23 Medicare items with a total annual value of $6.8 million in Medicare payments being removed from the MBS.[20] In total, the Taskforce has completed reviews of 600 items with another 2,500 currently under review.[21]

In addition to funding the continuation of the Review, the Budget includes $44.5 million over four years for the ongoing operation of the Medical Services Advisory Committee (MSAC).[22] This independent committee advises the Health Minister on new medical services and technologies to be funded under Medicare.

This measure appears to address stakeholder concerns over the process of removing items from the MBS. In a submission to the Taskforce in late 2015, the AMA expressed concern that the process of removing items was being fast-tracked, while the process for adding new items under MSAC was ‘slow-moving’, and warned this would result in a ‘disjointed’ MBS.[23] As noted above, the AMA’s agreement with the Government commits it to support the work of the MBS Review. These measures will not require legislation.

Health Care Homes Trial

The 2016–17 Budget included $21.3 million to trial Health Care Homes, to provide coordinated primary care for patients with chronic conditions.[24] These trials will involve a number of general practices and Aboriginal Community Controlled Health Services. While the measure was broadly welcomed at the time, stakeholder concerns emerged around the proposed starting date (July 2017) and funding levels.[25] The 2017–18 Budget measure Guaranteeing Medicare—development of the Health Care Homes trial delays the starting date for the trial; 20 Health Care Homes will commence services from 1 October 2017, with the remaining 180 to provide services from 1 December 2017.[26] Funding of $30.0 million is being provided to community pharmacies to incorporate medication management programs within the trial and a further $5.0 million to fund a general practice research pilot.[27] Initial stakeholder reaction has been broadly positive. The CHF welcomed ‘the modest investment in community pharmacy’ and described the staged implementation as ‘prudent’. The Australian Healthcare and Hospitals Association (AHHA) also welcomed the inclusion of community pharmacy in the trials.[28] Legislation is not required.

Medicare compliance

Savings of $103.8 million over four years are expected from the Guaranteeing Medicare—Medicare Benefits Schedule—improved compliance measure.[29] This aims to improve compliance of medical providers with Medicare billing rules and applies new debt recovery arrangements. Medical providers who bill Medicare should comply with Medicare billing practices such as submitting accurate claims and providing documentation. When an inappropriate billing practice is identified, providers are expected to repay to the Commonwealth any debt that is owed. Just 25 per cent agree to do so, according to a Government Fact Sheet.[30] This measure will introduce compulsory offsetting of future MBS payments, whereby up to 20 per cent of future payments will be offset to recover any debts incurred by providers. Stakeholder comment is yet to emerge, but views may become clearer when legislation, which is likely to be required, is presented to Parliament.

Medicare Levy increase

Although not part of the Guaranteeing Medicare package, the Government has announced that, from July 2019, the Medicare levy will increase by 0.5 percentage points to 2.5 per cent of taxable income, to ensure the Commonwealth’s contribution to the NDIS is fully funded.[31] Some $8.2 billion in tax revenue is forecast from raising the levy over the forward estimates.[32] The Medicare levy partially funds Medicare and, since July 2014, a share has been directed to help fund the NDIS. In 2016–17, the Medicare levy raised nearly $15.6 billion.[33] Meanwhile, Medicare expenditure totalled nearly $22.2 billion.[34] One-fifth of total Medicare levy revenue will be credited to the NDIS savings fund.[35]

The Medicare levy has been raised in the past, most recently to 2.0 per cent in July 2014, to help fund the NDIS.[36] Initial stakeholder comment has been broadly supportive.[37] More commentary could be expected when legislation to enact the measure is presented to Parliament. The Opposition Leader, Bill Shorten has stated that Labor will limit its support for an increase in the levy to those in the top two tax brackets.[38]

The Budget also raises the Medicare levy low-income exemption thresholds for singles, families and pensioners. Those on incomes below these thresholds are exempt from paying the Medicare levy.[39] This adjustment is made annually in line with movements in the Consumer Price Index (CPI) and will require legislation.

Other Guaranteeing Medicare measures

The Budget includes a number of other measures affecting Medicare. This includes minor savings of $0.7 million over five years from better aligning services provided under the 11 Reciprocal Health Care Agreements (RHCAs) with those provided by other countries. This will result in access to reproductive technology services and related medicines being curtailed for visitors from RHCA countries.[40] This will not require legislation.

This Budget also funds a number of new and amended listings for the MBS and Veterans’ Benefits as recommended by the MSAC, at a cost of $16.4 million over four years.[41]

This Budget also provides funding of $67.3 million to modernise the health and aged care payments ICT systems.[42]

Two previously announced but unlegislated measures will not proceed. Bulk billing and diagnostic imaging bulk billing incentives, which were due to be removed under a Mid-Year Economic and Fiscal Outlook (MYEFO) 2015–16 measure, will be retained. This will cost the budget $935 million over four years.[43] A 2014–15 Budget measure to simplify Medicare Safety Net arrangements has also been dropped, at a cost to the Budget of $314 million.[44]


Note: This version of the brief includes a minor revision relating to annual indexation. The revision was made on 18/05/17 at 11.00am AEST.

[1].          G Hunt (Minister for Health), ‘Guaranteeing vital services for Australia's world class health system’, media release, 9 May 2017.

[2].          Australian Government, Budget measures: budget paper no. 2: 2017–18, p. 109.

[3].          The indexation factor uses the Wage Cost Index (WCI5). The Medicare fee is set by Government and specified in the Medicare Benefits Schedule (MBS). Doctors are not obliged to charge this fee. The Medicare rebate is the benefit paid by the Government to the patient. For out of hospital services the rebate is 85% of the Medicare fee; for in-hospital services it is 75%. For GP services the rebate is 100% of the fee. If a doctor bulk bills they accept the Medicare rebate as full payment for the service. A Biggs, Medicare—background brief, Parliamentary Library e-brief, 2004.

[4].          Australian Government, Mid-Year Economic and Fiscal Outlook 2014–15, p. 166. Most recently, the 2016–17 Budget announced the freeze would apply to 30 June 2020. Australian Government, Budget measures: budget paper no. 2: 2016–17, p. 108.

[5].          Senate Community Affairs Committee, Answers to Questions on Notice, Health Portfolio, Budget Estimates 2016–2017, 6 May 2016, Question SQ16-000356.

[6].          G Hunt (Minister for Health), ‘Guaranteeing Medicare and improving access to medicines for Australians’, media release, 9 May 2017. More detail on this measure is available under the Budget Review article ‘Other health measures’.

[7].          In the December quarter 2016, the bulk billing rate for GP/VR GP attendances was 83.9%, which was lower than the previous two quarters but still higher than when the freeze commenced. Department of Health, ‘Quarterly Medicare Statistics’, Table 1.4b–GP/VR GP services.

[8].          Ibid., Table 1.5b. In the September quarter 2014, the average patient contribution for GP/VR GP services was $30.27; this had risen to $33.04 by the December 2016 quarter.

[9].          Consumers Health Forum (CHF), ‘Medicare thaws, now time to take health reforms off ice’, media release, 9 May 2017.

[10].       Australian Medical Association (AMA), Farewell freeze – government wins back goodwill with positive health measures, media release, 9 May 2017.

[11].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 167.

[12].       Australian Government, Budget strategy and outlook: budget paper no. 1: 2017–18, p. 3-8.

[13].       Ibid., p. 5-12.

[14].       Ibid., pp. 6-21–6-22.

[15].       P Coorey, ‘Tax, spend and build to win back political trust’, The Australian Financial Review, 10 May 2015, p. 1.

[16].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 167.

[17].       Department of Health, Guaranteeing Medicare—establishing the Medicare Guarantee Fund, [fact sheet, 2017].

[18].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 110.

[19].       Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 104. Funding was also provided to MSAC.

[20].       S Ley (Minister for Health and Minister for Aged Care), Review of Medicare Benefits Schedule, media release, 28 December 2015.

[21].       Ibid. See also, Department of Health, Guaranteeing Medicare—Medicare Benefits Schedule Review—continuation, [fact sheet, 2017].

[22].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 108.

[23].       A Rollins, ‘Patients, hospitals to carry the cost of MBS Review’, Australian Medicine, 27(10A), 3 November 2015, p. 8.

[24].       Australian Government, Budget measures: budget paper no. 2: 2016–17, p. 105.

[25].       A Biggs, ‘Medicare’, Budget Review 2016–17, Research paper series, 2015–16, Parliamentary Library, Canberra, 4 May 2016.

[26].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 108.

[27].       Department of Health, Guaranteeing Medicare—development of the health care homes trial, [fact sheet, 2017].

[28].       M McInerney, ‘Reactions to the 2017–18 Budget: rolling coverage’, Croakey, blog, 9 May 2017.

[29].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 108.

[30].       Department of Health, Guaranteeing Medicare—Medicare Benefits Schedule—improved compliance, [fact sheet, 2017].

[31].       Budget measures: budget paper no. 2: 2017–18, op. cit., pp. 24–25.

[32].       Ibid., p. 25.

[33].       Budget strategy and outlook: budget paper no. 1: 2017–18, op. cit., p. 5-11. Includes around $310 million in revenue derived from the Medicare levy surcharge.

[34].       Ibid., p. 6-21.

[35].       Ibid., p. 5-12. See table 6.

[36].       A Biggs, ‘A short history of increases to the Medicare levy’, FlagPost, Parliamentary Library blog, 3 May 2013.

[37].       Catholic Health Australia, ‘Billion dollar Medicare investment positive for health’, media release, 9 May 2017.

[38].       B Shorten, ‘Second reading speech: Appropriation Bill (No. 1) 2017-2018’, House of Representatives, Debates, 11 May 2017, p. 88.

[39].       Budget measures: budget paper no. 2: 2017–18, op. cit., p. 25.

[40].       Ibid., p. 107.

[41].       Ibid., pp. 109–110.

[42].       Ibid., p. 110. See also Australian Government, Mid-year economic and fiscal outlook 2016–17, p. 167.

[43].       Budget strategy and outlook: budget paper no. 1: 2017–18, op. cit., p. 3-39.

[44].       Ibid., p. 3-38.


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